The Goods and Services tax (GST) will bring about the biggest tax reform since Independence as it will stitch together a common market by dismantling fiscal barriers between states.
Government officials, however, feel the real battle to bring the tax structure into a reality actually begins now. “Passing of GST bill: This is only end of a beginning. The real hard work starts now,” revenue secretary Hasmukh Adhia tweeted.
There are major milestones which need to be covered before April 1, 2017, the likely rollout date for GST. At least 15 of India’s 29 states have to ratify the bill followed by the assent of the President. After which, the GST Council will be constituted.
GST COUNCIL AND ITS TASKS
States and the Centre will collect identical rates of taxes on goods and services. For instance, if 18% is the GST rate on a good across India, states and the Centre will get 9% each, called the CGST and SGST rates, respectively. The Centre will also levy and collect the Integrated Goods and Services Tax on inter-state supply of goods and services.
However, there has been no agreement yet on rates of various goods and services.
A panel under chief economic adviser Arvind Subramanian has recommended a revenue-neutral rate (RNR) of 15% to 15.5%, with a standard rate of 17% to 18% on most goods and all services. RNR is the single rate at which there will be no revenue loss to the Centre and states in the GST regime.
The panel has recommended a three-tier rate structure — some essential goods will be taxed at a lower rate of 12%; so-called demerit goods, such as luxury cars, aerated beverages, pan masala and tobacco products, at a higher 40%; and all remaining goods at a standard rate of 17-18%.
According to the bill, the rates will be decided by a GST Council headed by the central finance minister with state finance ministers as members. Apart from rates, the council will also have to develop consensus on exemptions, threshold limits and dual administration.
GST legislation, including central GST law, integrated GST law and 29 state GST laws (allied rules and notifications), would need to be passed by the relevant bodies.
During this process, the government will need to engage with industry bodies, traders, service providers and almost every local trade bodies and associations for the training and the acceptance of the new tax regime. The steps will require a lot of time, patience and constant deliberations both at the level of states and the central government. Only then, the April 1, 2017, deadline would be met.