After 11 long years, the journey to introduce a Goods and Services Tax (GST) in India is now nearly complete. The Dual GST Model will see the Central Government, 31 State Governments and 5 Union Territories levy and collect GST concurrently on a common tax base. The final hurdle was passed on 29 March when the lower house of the Union Parliament, Lok Sabha, approved the follow-up implementation related to the CGST Act, UTGST Act and IGST Act. Additionally, the act relating to compensation by the Centre to the States for possible revenue loss due to GST has also been passed.
The 31 States will now follow suit in getting the SGST Acts passed in their respective State legislatures, based on the common template for the laws that was finalized with consensus among the Centre and the States. No further problem or delay is envisaged, particularly because the template was decided by the GST Council unanimously, and the council has representatives from all political parties ruling different states.
Following the passage of the SGCT Acts by the State legislatures, the GST Council is expected to finalize/approve the various rules relating to procedural matters of GST (e.g., registration, payment, filing of returns, claiming refunds, valuation of taxable supplies, claiming/utilization of credit). Additionally, both taxpayers and some taxmen believe that certain provisions need minor changes for further easing of business, including treatment of works contract, provisional credit, and absence of centralized registration (for sectors such as financial services and telecom services). A few working groups have also been created to look into these areas of concern and recommend solutions to be incorporated in the rules or future notifications.
It is important to note that these laws have come out through a democratic process of sustained and continuous consultations between the taxpayers and tax authorities. All the draft documents were placed in the public domain, with response and comments from stakeholders obtained and critically examined before the final legislation was drafted.
At this point, the only major foreseeable challenge would involve the smooth operation of the IT infrastructure – the GST Net – on which the entire implementation of the GST scheme relies. The GST Net must be fully operational at least two months before the date of implementation, with a few pilot runs relating to registration, payment, filing of returns, and invoice matching done beforehand. A functioning GST Net prior to implementation will give confidence to both the taxpayers and tax authorities to successfully interact through this infrastructure.
The Indian government has fixed 1 July as the target date for implementation of GST, but considering the current situation, a two-month implementation delay would be advisable to provide adequate preparation time. Thus, a more realistic target date to implement GST would be 1 September 2017.
Sumit Dutt Majumder is former Chairman of the Central Board of Excise & Customs in India, and currently an Advisor to the International Tax and Investment Center.