Finance Minister addressing a briefing while Revenue Secretary Hasmukh Adhia looks on. (Source: PTI)

GST Rollout: If Not April, When?

The Centre’s aim of rolling out the Goods and Services Tax (GST) from April 1, 2017 just got tougher. With the all-powerful GST Council yet to arrive at a consensus on any of the three GST laws – namely the Central GST Bill, the State GST Bill and the Integrated GST Bill – the government has missed its chance of getting Parliament’s approval in the winter session.

The winter session of Parliament ends on December 16.

The Council which met for the sixth time last Sunday, managed to go through only some of the provisions in the Central and State GST Bills, some of which also need to be redrafted. The two more contentious issues of Integrated GST and the bill to compensate states for revenue losses were not even taken up at the last meeting. Throw in the demonetisation conundrum, and the already edgy state governments have turned more tentative.

The Council is also yet to decide the list of items which would fall under the tax slabs of 5, 12, 18 and 28 percent. Finance Minister Arun Jaitley had said that essential commodities, which include 50 percent of the goods in the current consumer price index basket, will be taxed at zero percent under the GST.

The only choice left with the Centre now is to iron out differences and table these laws in the Budget session of Parliament, due to begin in January, or call for a special session of Parliament before that.

Individual state legislatures will also have to ratify these bills before the new tax regime can be rolled out, making it only more difficult for the Centre to implement GST from the start of the next financial year.

GST Rollout Deadline

After Sunday’s GST Council meeting, Finance Minister Arun Jaitley, reiterated that the government is still aiming to meet its April 1 deadline.

We stand by the April 1, 2017 target of implementing the GST. We do not have the luxury of time as we have just five months and sixteen days before the curtains draw on the old taxation rules.
Arun Jaitley, Finance Minister

Citing constitutional compulsion, Jaitley had on December 2 sought to drive home the point that GST has to roll out before September 16 next year as the existing indirect taxes will come to an end by then and it would not be possible to run the country without revenue collection. All existing indirect tax laws of the Centre and the states will be void a year after the Constitution amendment for GST was notified in the official gazette.

State finance ministers said the April deadline is an uphill task, with so much ground left to cover.

Kerala Finance Minister Thomas Isaac batted for a September rollout, blaming the demonetisation for erosion of mutual trust between the Centre and states, and a breakdown of the cordial environment in which GST discussions were progressing. He also maintained that the Centre will have to compromise on the issue of division of tax assessees.

The GST rollout will only be in September 2017…the laws have to be passed, there is no consensus on the issue of dual control....I come from Kerala, and here is the central government unilaterally destroying our entire cooperative structure which account more than a third of bank deposits of Kerala, and you expect me to come and shake hands on GST?
Thomas Isaac, Finance Minister, Kerala 

Tamil Nadu State Education Minister K Pandiarajan agreed that it is completely up to the Centre to compromise on the issue of cross-empowerment, adding that it is the only issue which is holding up deliberations. If the Centre agrees to compromise, the rollout could even be possible by the April 1, 2017 deadline, he added.

Most states are demanding exclusive control over all traders who have an annual revenue threshold of less than Rs 1.5 crore, but the Centre is unwilling to yield to this demand as it will leave a very small pool of traders under its control. Instead, it favours dividing traders in a fixed proportion between the Centre and the states irrespective of a threshold.

A senior state official and a representative to the GST Council told BloombergQuint that April 1, 2017 may be difficult but not impossible. If the April deadline is missed, the new indirect tax regime may get implemented between July and August, he said on the condition of anonymity.

Since GST is a transactional tax, it can be levied, modified and implemented at any point during the year and not necessarily from the beginning of a quarter, he added. Moreover, once GST is implemented, the transition to the Goods and Services Tax Network – the IT platform for GST – is unlikely to see a big delay as data migration in many states has already begun, he said.

Is India Inc Ready?

Vineet Agrawal, the group head of taxation at JSW Steel is of the view that GST will be rolled out by July 1 next year because of the constitutional deadline of September 16, 2017. He also expects supporting legislation to now be tabled in the Budget session.

According to him, once the laws are passed and the rules are in place, businesses should be given at least 3-4 months to move to the new tax regime.

Some delay with regards to the implementation of GST is inevitable as the repricing of goods after the revision of taxes will take some time, said Satya Poddar, tax partner of the policy advisory group at consultant firm EY.

Even if the laws are amended before April 1, some delay is unavoidable…the government has to give industry at least 3-6 months for the actual implementation.
Satya Poddar, Tax Partner-Policy Advisory Group, EY

Every business will have to go through price revision of products because of the revised tax structure, Poddar said, adding that the Centre will also have to provide a rebate or refund for the excise duty already collected for the stock in hand. The mechanism through which the rebate or refund will be allowed is yet to be fully laid down by the government.

If there is any likelihood that the tax on a particular commodity will go up after the implementation of GST, people will start hoarding that commodity before its rollout. In cases where the tax will be lower than the current regime, dealers may delay purchases, Poddar said.