GST Parliament clearance, to be in rolled out by July 1

With the Lok Sabha passing the last batch of bills on the Goods and Services Tax (GST), India is just a step away from rolling out an indirect tax regime that will for the first time economically unify the country. This game-changing tax reform initiative also puts in place a template for cooperative federalism because the states, thanks to the creation of the GST council, are as much a stakeholder as the Centre. The rollout has been made possible after the states and the centre agreed to merge their existing taxation powers to evolve a uniform tax structure.

The final countdown begins

Last week, the lower house passed the four bills—central GST bill, the integrated GST bill, the union territory GST bill, and the GST (compensation to states) bill. Since these bills were tabled as money bills, the Rajya Sabha can only make recommendations on the proposed laws and that too within 14 days of the bills being sent to the upper house. This means the government will be able to push through these bills in Parliament before the end of the ongoing budget session on 12 April. To be sure, the state legislatures will also have to give their nod to the state GST bill to facilitate a pan-India rollout of the tax from July 1.

Cooperative federalism

Highlighting the uniqueness of this reform, which has been underway for more than 10 years, finance minister Arun Jaitley said it is for the first time that the Centre and states have come together and pooled their sovereignty into the GST council to make it a reality. “GST is the first of its kind federal contract with constitutional sanction. We (Parliament) are free to make our recommendations to the council but at the same we will have to honour this federal contract where states and the centre have pooled their sovereignty and arrived at the various provisions of these bills,” he said in the Lok Sabha.

GST includes a host of indirect taxes levied by the Centre and the states including excise duty, service tax, value added tax, entertainment tax, luxury tax and entry tax. This means that both the centre and the states are giving up their autonomy when it comes to collecting these indirect taxes, which is a major part of their revenue steam.

The concerns

A multiple rate structure, increased compliance for service providers and the search, seizure and penal provisions all threaten to reduce the benefits of this indirect tax reform as initially envisaged. The Finance Minister defended the decision to define agriculture, clarifying that it is only for the purposes of exempting farmers from registration. “These products (livestock, dairy farming) could still be zero-rated,” he added. Criticising the move, Congress MP Veerappa Moily said that one nation, one tax is only a myth. No one can call these bills a game changer. It is just a small baby step forward. For him, clarity still eludes any of the provisions of GST including taxation of special economic zones and the way the anti-profiteering mechanism will work.

The GST Council will soon finalise nine sets of rules including those on valuation and the transition towards GST. It will also start the process of fitting various goods and services into the four slabs—5 per cent, 12 per cent, 18 per cent and 28 per cent – over April and May. “The tax rates will be determined depending on the nature of the item and who uses it,” Jaitley said adding that a ‘hawai chappal’ (flipflops) cannot be taxed at the same rate as a BMW car.

Meanwhile the GST Network, the information technology backbone, is also in the process of testing its software and hardware and will open it up for limited trial runs over the next couple of months. The government has also constituted 10 working groups to look into industry-specific issues to ensure a smooth transition. Jaitley said the government was trying to convince the council to bring real estate and petroleum products under GST’s ambit but stressed that any decision will be taken by consensus and not by a vote.