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GST enters final leg; may stretch to 2016-17

business Updated: Jul 12, 2014 00:02 IST
HT Correspondent

One of India’s biggest tax reform initiatives — goods and services tax (GST) — has entered the final leg with most the contentious issues expected to be ironed out this year, but experts said its implementation schedule may still be pushed to the 2016-17.

“Implementing this law is complex as state governments are resisting the loss of fiscal autonomy with the implementation of goods and services tax (GST).

The law also needs a constitutional amendment that requires a two-thirds majority in Parliament and hence we expect that realistically it is likely to be implemented by 2017,” investment bank Morgan Stanley said in a research note on Thursday.

GST’s implementation faces political hurdles as it could rob state governments of discretionary fiscal power.

If adopted, GST can dramatically alter tax administration by giving a one-shot solution to a welter of levies such as excise, value added tax and octroi and stitch together a common national market.

Under the system, the Centre and states will tax goods and services on identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each.

The government had introduced a Constitution Amendment Bill in 2011 in the Lok Sabha to enable GST’s roll-out. A new government and Lok Sabha will have to re-start work on the tax reform.

The debate on whether to introduce GST must come to an end now, finance minister Arun Jaitley said during this budget speech, adding: “we have discussed the issue for past many years. Some states have been apprehensive about surrendering tax jurisdiction others want to be adequately compensated.”

GST is India’s most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states. It is a single national uniform tax levied across the country on all goods and services.

The indirect tax system in India is currently mired in multi-layered taxes levied by the Centre and state governments at different stages of the supply chain such as excise duty, octroi, central sales tax (CST), value added tax (VAT) and octroi tax among others. In GST, all these will be subsumed under a single regime.

In addition to the passage of the Constitution Amendment Bill by the Parliament and state Assemblies, it is also imperative to have a robust country-wide information technology (IT) network and infrastructure to make the implementation seamless across state boundaries.

The IT network is still work in progress.