4th of August proved to be a historic day for India. The upper house of India’s parliament finally passed the much awaited GST (Goods and Services Tax) bill. On wednesday, Rajya Sabha passed a constitutional amendment with full majority, paving way for this landmark tax reform. While talking about this bill in Loksabha, Prime Minister Modi expressed that GST bill will in fact grant freedom to Indian corporations from tax terrorism. What exactly then, does this much talked about bill propose? How does it affect the Indian economy?
The proposed GST would subsume various central as well as state level indirect taxes, thereby omitting double taxation and creating one window for market operations. The proposed taxation rate ranges around 16 to 18 percent. This would result in simplification of sales tax charging mechanism. As multiple territorial domains for sales tax purpose cease to exist due to this bill, artificially created cost structures will be eradicated. The erstwhile multiplicity of ST laws, rules and procedures also used to cause great administrative burden, which will now be relaxed.
Additionally, introduction of the GST bill will ensure greater competitiveness, leading to growth in the markets and thereby a growth in national GDP by an estimated 1.5 to 2 percent per annum. It is also important to note that 16 to 18 percent is a reasonable rate for GST and would certainly not start an inflationary trend in most of the products in the markets. Hence rather than being a burden for the common man, implementation of GST is going to be beneficial in a holistic way.
And while the big hurdle of consensus is probably crossed, implementation of GST is no mean feat. In fact effective implementation will remain a bigger task to achieve. A sound legal framework needs to be established for GST, which includes formation of a GST council, recommendations from this council about GST laws, actual government approval and subsequent notification of GST laws. On the other hand, an able IT support infrastructure needs to be developed to ensure that there is a single GST network for centre as well as states. Government officials need to be trained in the legal and IT framework to ensure right implementation of GST. Importantly, training government officials is not enough. The industrial sector also needs to be sensitized about macro as well as micro details of the actual execution of GST.
This giant task is expected to be accomplished by mid 2017. Passing the bill proves to be a very crucial yet only the beginning step. The real impact of GST can be seen only when these impending tasks are accomplished.
IBA welcomes the passing of this landmark bill and looks forward to a smooth implementation of GST.
Effective GST in action would translate to ease of doing businesses in India, and contributing in the India growth story!