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Delay in passing GST bill will hit investments and jobs

The delay in passing the GST Bill will affect jobs, revenues and investments adversely.

editorials Updated: Aug 14, 2015 00:54 IST
The GST Bill remains clouded in uncertainty with the ongoing Parliament logjam.
The GST Bill remains clouded in uncertainty with the ongoing Parliament logjam.

The wait for a country-wide goods and services tax (GST), that would take India closer to being a one unified market, just got longer. The landmark amendment to the Constitution faces further roadblocks ahead, with yet another session of Parliament passing by without enacting legislation that has been in the works for about a decade. It is indeed a matter of historical irony that the Congress, which first introduced the Bill in 2011 under the UPA, and has been championing the need for replacing local and regional taxes that have caused red-tape, confusion and corruption with a single levy, remains opposed to the Bill.

The government had targeted to roll-out the new tax structure from April 1, 2016, an unlikely possibility given the current impasse in Parliament. The system can be rolled out only when Parliament passes the Constitution Amendment Bill, which can be passed only if at least two-thirds of the members vote in its favour. In addition, at least half of the assemblies need to pass the Bill. The delay in the passage of the Bill implies that India’s indirect tax system will continue with 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), and value added tax (VAT) among others.

The delay will likely cause other consequences as well. For one, states cannot decide on the tax rates until the Bill is passed. The Bill has not specified the rate, which will be decided by a GST Council headed by the central finance minister with state finance minister as members. Pending the passage of the Bill, the Council cannot be formed and rates cannot be decided. In addition, it is imperative to have a robust country-wide information technology (IT) network to make implementation seamless across state boundaries.

Plans to test the IT network before its roll-out will have to be on hold since the Bill has not been passed and as the GST rates on specific goods and services have not been decided. GST has missed several roll-out deadlines earlier, all because of want of a political consensus. India cannot continue to remain a collection of several different markets governed by different sets of tax rules and rates. The fiscal hurdles among states have kept away large-scale investments in what should otherwise count as one massive, attractive market. Every deadline miss translates into fewer jobs created, lesser revenues for states, and lower investments made. India cannot afford to delay its date with a unified nationwide indirect tax system indefinitely.