Much awaited “one nation, one tax, one market” came to reality with RS passing the GST bill last week. The next steps include
- Get the CAB (constitution amendment bill) approved by at least 50% states
- Create a GST council
- Concluding the Center GST and State GST rates with cabinet approval
- Training, documentation, digital (IT) readiness
While implementing GST is noted as a historic economic reform like the one in 1991, let us see the challenges with each of the phases mentioned above:
- Get the CAB (constitution amendment bill) approved by at least 50% states, generally called as ratification. GST being a revenue loss on certain items in some states for a brief time, they would like to have an assurance from centre on the compensation. 16 out of 31 states should approve the CAB to proceed to next phase. 11 states including BJP ruling will approve without any problem. Other states like Andhra Pradesh, Telangana, Kerala, WB, Tripura would support the ratification. The whole process looks to be completed by September 2016 with all the support.
- Creating CST council: GST council is very much needed that will decide the GST rates. Here comes the crucial part. Many states where they see the rates will hamper their revenue as compared to pre-GST era would raise concerns and this may delay the GST rollout. The council once formed will resolve these disputes. The rates would be as low as 12% for essentials, and as high as 40% for luxury items. The council will exclude both petroleum and alcohol items from GST for now (it is simple – the tax revenue from alcohol for some states is high. Including that in GST will benefit the alcohol prohibited states or states with low revenue from alcohol. It is wiser not to include in GST. Also similarly electricity and petroleum are also been considered not to be included).
- Rolling out the GST: it is expected to be rolled out from 1st April 2017. If the challenges expected are resolved in time, we are good by next year.
- Training, documentation, digital (IT) readiness: Infosys is working on the IT infra for GST. Tax officials may have to now deal with simpler tax calculations, but transition from older to new one can be tricky and government is creating a strong transition mechanism.