GST Bill an example of half-baked and vague reform
Politics over the Goods and Services Tax has just begun.
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Contrary to the euphoria and costlier-cheaper headlines, the Constitution (122nd Amendment) Bill 2014 doesn't spell out even the outline of the GST that India is expected to get in the future.
The passing of the GST Bill is just the beginning of a tedious political and operational voyage that should ultimately result in the implementation of a unified GST in India. As lawmakers have set the GST ball rolling after wasting a precious decade, now the fate and success of India's most celebrated and complex reform will hinge upon the power of politics and strength of technology.
Soon, a GST Council, with representatives from each state, will be created to set the political process in motion. The council will decide how much a common man will have to pay under the GST raj while the GST (technology) network is tasked to ensure a seamless nationwide processing of tax returns and revenue-sharing.The passing of the GST Bill is just the beginning of a tedious political and operational voyage that should ultimately result in the implementation of a unified GST in India.
Unfortunately, provisions related to the GST Council and progress report of the Goods and Services Tax Network (GSTN) don't offer confidence for smooth sailing of the reform and attainment of the April 2017 deadline. In spite of its deftness and quality, the Rajya Sabha debate on the GST Bill failed to offer clarity on many important politico-economic aspects of the GST, including the tax rate, inflation and ease of doing business.
In fact, GST Bill is another example of the lawmaker's habit of delivering half-baked and vague reforms. The Constitution (122nd Amendment) Bill 2014 has several ambiguities that may become a big challenge in sustaining consensus among the various stakeholders.
Union finance minister Arun Jaitley might have been able to take dissenting voices in Parliament on board, but politics over the GST is not over yet. In fact, it has just begun.
Going by the reply of the government in the Rajya Sabha, the GST Council is likely to emerge as a powerful federal body. However, provisions of the statute bill indicate that there may become a turf war between the Centre and states in the GST Council.
The council will come into being within 60 days of the enactment of the constitution amendment bill.
It will recommend rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states, and practically every major aspect essential to the operation of the GST.
The GST Council will consist of the Union finance minister, Union minister of state for revenue, and state finance ministers.
It is still not clear whether the GST Council's "recommendations" would be binding as the constitution amendment bill uses the words "recommendations" and "decision" in different contexts.
Powers and authority of the GST Council will be decided through negotiation between the Centre and states. The council may turn into a toothless body if its decisions are not binding.
The lack of a clear dispute resolution framework may also become a major source of trouble. The existing provision empowers the GST Council to establish, at some later date, a dispute resolution mechanism where a state can challenge the decision of the GST Council.
The provision looks strange as a decision-making body will also decide how its decisions will be contested.
Now comes the technology
As the power to impose and collect taxes is spread across the Central and state governments, the GSTN is the backbone of GST implementation.
The GSTN is a new institution, a non-profit, non-government, private limited company, jointly owned by the Central and state governments, created to act as a central technology platform for GST implementation.
The GSTN is tasked to ensure smooth collection of revenue, quick processing and a seamless sharing of revenues between the Centre and states.
With the target to go live from April 1, 2017, the GSTN is still a work in progress. It has to set up a robust and fault-free IT backbone to migrate nearly 65 lakh entities registered under excise or service tax and the state's value-added tax (VAT) administration.
It is going to be a tough task to align the GSTN with the states since each state has a different format for the VAT.
Testing of the GSTN software is scheduled to start by October and a beta launch of the GST portal is planned by February next year. Going by the computerisation experiences of revenue departments, the GSTN may well become another major challenge for implementation of the GST.
Secret of consensus
One may ask how Jaitley forged a political consensus on the GST despite poor groundwork and several legislative ambiguities.
This became possible only when Jaitley agreed to clear the payments of compensation to the states, pending against the phased out Central Sales Tax (CST). States have also forced the Centre to place a clear provision in the constitution amendment bill to compensate states for any loss of revenue for a period which may extend to five years.
Whatever may be the hype on the GST, the constitution amendment has only ensured that the interests of state governments do not get compromised after the implementation of the GST. As far as two other stakeholders - the industry (big and small) and consumers are concerned, there is many a slip between the cup and the lip.