It is a great relief that the country is close to adopting the goods and services tax (GST) regime. The country’s biggest tax reform, which fundamentally alters the taxing capacity and method of the Centre and the states, has taken almost a decade to bring about legislative consensus. The Bills concerned have received parliamentary nod even though there was much acrimony over the government insisting on using the money Bill route. The focus now shifts to seamlessly implementing an efficient GST.
While the government is in a hurry to implement the GST
regime from July 1, it would be advisable to delay it to September 1, as is being demanded by industry. There are several reasons why this makes a lot of sense. For one, states still have to pass their GST
Bills, which will be more or less replicas of the Central GST and Union Territory GST Bills. Moreover, even though the necessary Bills have been passed by Parliament, there is still inadequate clarity on rules. It is true that the GST Council on Friday cleared rules on five aspects of the new indirect tax regime — registration, returns, payment, refunds and invoices — and has invited public comments. The GST Council has also “tentatively” approved four sets of norms. But these again will be passed formally when the council meets in Srinagar on May 18 and 19.
Lastly, there is the all-important issue of the fitment of rates. The GST Council has approved four tax slabs — 5 per cent, 12 per cent, 18 per cent and 28 per cent, besides a cess over the peak rate on sin and luxury goods. But the actual fitment of rates — which commodity falls in which category — is essentially the business end of the GST deal. If past discussions on the GST are anything to go by, it is quite likely that the fitment of rates will involve a lot of back and forth and is unlikely to be decided before the end of May.
That will leave India Inc a time frame of just six odd weeks to prepare for the GST regime. Even the biggest and best-prepared companies will be hard-pressed to not just register themselves on the grid but also reconfigure their tax and technology systems to the new order of things. The situation will be worse for smaller firms and enterprises, which neither have the technological know-how nor the ability to adapt so quickly to the new rigmarole. Nearly 70 per cent of small businesses are yet to adopt digital technology in their business format and as such it is a big challenge for them to adopt a new tax regime in such a short time. These concerns are crucial, because if even one firm in the supply chain falters in its tax payment it will upset the input credit for others.
The government should thus be flexible on the implementation date. As it is, the GST is already quite delayed and heaven will not fall if it is postponed to September, which will give the government and others enough time to launch an outreach programme to spread awareness about the intricacies of the new tax structure. Most countries that have adopted a value-added tax like the GST had given their economic entities at least 12 months after rules were notified to gear up for compliance. Why risk ushering in a GST regime that has not yet ironed out all the creases?