The delay in implementation of the goods and services tax (GST) will not only harm the economy but could also defer investment plans of corporates, particularly in the logistics sector, say industry experts.
The government’s attempt to amend the Constitution to roll out the GST from April 1, 2016 may not succeed in the current monsoon session of Parliament with the Congress and several other parties opposing the reform.
The parliamentary approval for the legislation in the current session is necessary so that at least half of the states clear it for rolling out the new regime from April 2016. The GST will replace all existing indirect taxes like excise and VAT.
“Investors, both domestic and foreign, are looking forward to implementation of GST, which will change the pattern of doing business. It will not only lead to a uniform tax structure, but also cut down logistics and warehousing costs. Delay in its implementation could lead to delay in investments and expansion plans,” CII Madhya Pradesh Council chairman Girish Mangla said.
Taxation at the national level, rather than by each state, will result in more efficient cross-state transportation and bring down logistics costs.
“The GST will remove the trade barriers and boost government revenues. Also, the cost of material will be reduced by 2-3%. Any delay will be bad for the economy and affect investment climate,” Dewas industry association president Ashok Khande-lia said.
Madhya Pradesh, being a net consuming state, will gain from the implementation of GST which is a destination-based tax.
Finance minister Arun Jaitley has said that lower cost of production will make Indian industry competitive, domestically and internationally. The minister has claimed that the GST will add 1-2% to the GDP growth rate.
“The only problem is the proposal to allow manufacturing states to levy additional 1% in lieu of entry tax. This clause should be removed,” said industrialist Sunil Garg.
Currently, each of India’s 29 states taxes goods that move across their borders at different rates. As a result, freight that moves across the country is taxed multiple times.
However, with the ongoing logjam in Rajya Sabha, the chances of GST bill passing in this session seem remote.
Highlights of the Bill
The Bill amends the Constitution to introduce the goods and services tax (GST)
Parliament and state legislatures will have concurrent powers to make laws on GST. Only the Centre may levy an integrated GST (IGST) on the interstate supply of goods and services, and imports
Alcohol for human consumption has been exempted from the purview of GST. GST will apply to five petroleum products at a later date
The Bill empowers the Centre to impose an additional tax of up to 1%, on the inter-state supply of goods for two years or more. This tax will accrue to states from where the supply originates.