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Is the GST Council on target to meet the July 01st 2017 deadline?

Economy | Published on Apr 03rd 2017 | Comment(s) 0
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On 29th of March, the cabinet cleared the four key bills that will facilitate the timely implementation of the GST effective from July 01st this year. The Lok Sabha passed the Central GST Bill, State GST Bill, Integrated GST Bill and the GST Compensation of States bill in the Lok Sabha. The GST bills were presented in the form of money bills and hence the asset of the Rajya Sabha is not essential for the timely implementation of the bill. In addition, there are state level bills that will now have to be ratified by the respective state legislatures. 

Now that the bills have been passed in the Lok Sabha, the passage of the bills in the Rajya Sabha should be a mere formality since money bills do not require assent of the Rajya Sabha. After presenting in the Upper House, the bill will be sent to the President for final assent, after which it becomes law. Between now and the actual implementation on July 01st, there are a few key issues that will have to be addressed. Here are a few of them…

How desirable is absolute powers to the GST Council?

One of the key objections of the opposition parties pertains to the absolute powers conferred on the GST Council. The GST Council consisting of the Finance Minster, Mr. Arun Jaitley, and the state finance ministers, will have almost have absolute discretionary powers over all aspects of the execution and implementation of the GST in India. Effectively, the GST Bill takes away the parliamentary powers to set GST rates and confers these powers on the GST Council. Then there is the all important issue of data privacy. The Goods & Services Tax Network (GSTN) that will provide the framework for the implementation of GST will be a private body with the government holding just 49% stake in GSTN. This raises some critical questions over data privacy as business data across states will have to be uploaded on the GSTN and requisite checks and balances will be required for protecting the data. 

Interpreting the global experience with GST…

This is another critical issue that could have economic and larger political implications. In fact, the global experience with GST has been quite mixed. For example, countries like the United States and China, two of the largest economies in the world, have consciously avoided shifting to GST due to practical problems of implementation in a Federal structure. On the other hand, countries like Australia and Malaysia have seen inflation shooting up sharply in the first two years of GST implementation. This could have larger political implementation as the ruling NDA may not be too comfortable with inflation shooting up ahead of the 2019 central elections. Additionally, in the Indian context, GST will require around 36 different registrations and that will go against the basic grain of the “Ease of Doing Business”

Company level readiness for GST…

The big challenge for the GST will be corporate readiness. Indian companies have to undertake major changes in terms of legal, compliance and IT infrastructure. In fact, IT infrastructure and software readiness will be the biggest challenge. The real worry is not the writing of the software, which may happen rather fast. The real challenge is in the integrity testing, stress testing and the ability of the software to work seamlessly across India as well as its ability to talk to other existing data sources. This may require large scale changes in programs, database structures and storage which may not be feasible before July 01st. In fact, it is now believed that the absence of company-level readiness for GST may be the one key factor which may force the GST Council to postpone the date of implementation to September, instead of July this year. There is also the case of small and medium size businesses which do not have the capacity to invest in sophisticated IT infrastructure for the same. This may tilt the level-playing field in favour of the larger more established companies across business lines.

Finalizing on the actual product level rates of GST…

That is still the big unfinished agenda as far as GST implementation is concerned. While the GST Council has been instrumental in agreeing upon the peak levels of GST and the base level of GST as far as the average GST impost is concerned, specific rates of GST by product and sub-product categories are still pending. According to experts, the GST Council will have to finalize the actual product-wise GST rates latest by first week of May if the July 01st implementation has to be met. The GST Council, while deciding on the GST rates, will have to ensure that majority of the rates trend around the general rate of 18%. The peak rate of 28% should be kept more as an exception rather than as a rule to maintain the sanctity of the general GST rate of 18%. In fact, this again needs to be taken up urgently as companies can fix their selling price of their various products only after they get to know the complete schedule of GST rates in a granular manner.

Role of the Anti-Profiteering authority…

For the first time, the GST Council has approved the formation of an Anti-Profiteering authority. This is a good concept in the sense that it compels the businesses to seamlessly pass on the benefits of any GST cuts to the end customer. Failure to pass on these benefits to the end customer will invite penal action from the Anti-Profiteering authority. While this is a good move on paper and will ensure that consumers benefit in the process, this clause does run the risk of misuse. There are already fears expressed by businesses that officials of the Anti-Profiteering authority may use this as a whipping tool to hound businesses, something that may not be conducive to encouraging ease of doing business in India.

In a nutshell, the passage of the bill and the framing of rules for GST will be the easier part. The real challenge will be handling the actual implementation across such a wide geography and across such a wide and disparate constituency. That may the next big challenge for GST!




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