The finance ministry on Thursday went all out to convince everybody that all efforts were being made to roll out the goods and services tax from April 1, 2017, and allayed fears that it would have an impact on inflation even if the rate was kept at 20 per cent. A detailed roadmap to meet the deadline was ready, Finance Minister Arun Jaitley, along with his junior ministers and top bureaucrats, told media a day after the RajyaSabha passed the historic Constitution amendment Bill. Analysts, however, are sceptical about the April 1 rollout and said the biggest challenge was the Congress' demand to cap the rate at 18 per cent in the subsequent GST Bills. Responding to a query at press conference, Jaitley said, "What you need is an optimum rate." He emphasised that GST will not only improve ease of doing business but also lead to a fall in prices in the long run. The minister said a notice to transmit the changes in the Constitution amendment Bill cleared by the Rajya Sabha had already been given to the Lok Sabha. The Lower House of Parliament is likely to debate the Bill on Monday. After presidential reference, the Bill would have to be ratified by at least half of states in the country. Jaitley hinted that many state assemblies would consider this issue in the ongoing monsoon session. Others, where monsoon session has ended, could call a special session.
Talking about the roadmap for the GST rollout, Jaitley said, "We are going to try to make it as reasonably quick as possible… It is better to set a target than having none." Revenue Secretary Hasmukh Adhia said the government was targeting April 1, 2017 for implementation. "Within the next 30 days, we expect 50 per cent of the states - about 16 - to approve the Constitution amendment Bill." Once the state assemblies clear the Bill and the President gives his assent, the Cabinet will set up the GST Council. Adhia said the finance ministry was ready with the draft model GST Bill to be considered by the proposed GST Council. The draft model GST Bill has already been put in the public domain for comments. There are 233 odd clauses in the Bill. Since the Bill was put up for comments in June, 40,000 representations on it have been received by the ministry, Adhia said. The revenue secretary added that technical structure would also be ready by December. In the next three-four months, the new software would be tested and integrated with the existing ones. As many as 60,000 assessing officers - comprising 30,000 each from the Centre and states - would be trained to use the new mechanism. Besides, the government has already started outreach programme with businesses. Multiple town hall meetings will be held with stakeholders, including traders and other businesses, Adhia said. On the filing of returns, he said the government has already received the database of VAT dealers. These, along with dealers coming under central excise duty and service tax, would automatically migrate to the new system. For new dealers, return filing would be quite simple. However, for business-to-business transaction, there would be four returns. Small dealers, who opt for composite tax, would have to file quarterly returns.
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Adhia spelt out seven challenges which the government expects. These include calculation of revenue base of the Centre and states, along with compensation requirements of Centre, GST rates structure, list of exemptions, forming of consensus on model GST Bill, threshold limits, and avoiding dual control over scrutiny and assessment.
Chief Economic Advisor Arvind Subramanian said that even if the GST rate was 18-20 per cent, there would be no average impact on inflation. "Our calculation suggests that if you allow 18-20 percent (GST rate), there is no inflation impact on average. Of course, a few commodity here and a few commodity there, the incidence will go up. But on average, especially for the poorest, I will be very surprised if there is any impact on inflation at all," he said.
Economic Affairs Secretary Shaktikanta Das in a tweet said GST would unleash a lot of energy into the Indian economy and push the GDP growth to over 8 per cent in medium term. "External factors continue to be of concern. Policy focus will be to strengthen our firewalls against such vulnerabilities," Das said.
MS Mani, senior director, Deloitte Haskins & Sells LLP said, "…as some of the key steps are slated from now onwards till March 2017, the implementation date of April 1, 2017 appears difficult to achieve."
However, Prashant Pillai, country head - tax and accounting business, Thomson Reuters, said, "We believe that government has strong resolve to implement this by April 2017. It is extremely critical that corporations - while they review the impact of this change on their supply chain, tax outflow - also pay significant attention to implementing enabling technology changes that will achieve a smooth transition."
Adhia said the talk of 18 per cent tax rate was premature. The Congress has been demanding a cap on the rate in the GST Bills on the basis of a report by a panel headed by Chief Economic Adviser (CEA) Arvind Subramanian. Jaitley said, "This 18 per cen thas been thrust on the CEA."
The National Institute of Public Finance and Policy came out with the revenue-neutral rate but it was based on 2013-14. Since then, the Centre has imposed additional cesses and some states have imposed new local taxes. If one takes weighted average of tax rates, 65-70 per cent of goods attracts 27 per cent central and state tax rate. If one adds central cesses and local taxes, the rate would go to at least 30 per cent. Jaitley said Empowered Committee of state finance ministers had resolved to bring down GST rate from this level. However, the rate should also meet the states' development goals. This balance will be decided by the proposed GST Council, he said.
Adhia said the ministry was still discussing with the state finance ministers the threshold below which the GST would not be applicable. Some states wanted it to be at annual turnover of Rs 10 lakh, while the Centre and other states were for annual turnover of Rs 25 lakh. Also, the Centre and states are engaged in discussion to reduce dual administrative control over assessment and scrutiny. States want to have sole power over businesses with annual turnover up to Rs 1.5 crore, with dual control for annual turnover above this threshold.
On the other hand, the Centre has among various options suggested a cross empowerment whereby both states and the Centre would have administrative control over businesses and whoever strikes first would send notices. These all would be part of GST laws or rules there under. The model GST law has to be prepared in time so that the Parliament could pass the central GST and integrated GST Bills and state assemblies could also clear their respective GST Bills in winter sessions.
HOW FINMIN PLANS TO GET GOING ON GST
Notice sent for changes in Constitution amendment Bill to be transmitted to Lok Sabha
Within 30 days, ratification of the Bill by 16 states
Cabinet nod for GST Council after President’s assent
Recommendations for model Bills by GST Council
Approval for State GST laws by respective states
Passage of Central GST, Integrated GST laws in the upcoming winter session
Software for GST to be ready by Dec
Training of 60,000 state, central officials by December
Notification of GST Rules by March 31, 2017
Existing VAT, service tax, Central Excise dealers to migrate to GST system automatically
Source: Revenue Secretary Hasmukh Adhia’s presentation and FM Arun Jaitley’s remarks at press conference