Our political parties have finally realized the fact that good economics makes for good politics. The Goods and Services Tax (GST) Bill, which was passed in Rajya Sabha on 3rdAugust, 2016 will unify India’s tax structure, make manufacturing more efficient and boost the ease of doing business. Well Govt. is aware of hardships faced by common man.
As the ease of doing the business improves, India’s attraction as preferred investment destination is expected to get a Phillip. It will eventually lead to higher sustainable growth and stable inflation. GST charts a new course for fiscal federalism and paves the way for India’s largest ever tax reform.
The aim behind GST is to dismantle barriers between states and create a common market in India. States and Centre now have to engage in talks to flesh out details and attendant tax rate of GST, and then operationalise it. Nothing can be bigger than the most comprehensive reordering of the country’s vast and complicated indirect tax structure. What is proposed for India is not a single national tax but a set of 38 taxes – 29 state taxes (SGSTs), 7 Union Territories Taxes, one Central GST (CGST) and the integrated GST (IGST) on inter‐state supplies – all harmonized to look like a single tax.
The task of designing GST is assigned to GST Council, a collective forum of states and central governments. The council will be deciding important aspects of the tax including the base, rate, allocation of tax among the states, administrative plan and compliance procedures. GST Council may decide on a Revenue‐neutral Rate (RNR), the rate at which there will be no loss in aggregate central and state tax revenue. Experts agree that GST can be introduced during the fiscal year. This is a transaction based tax unlike income tax, so it can come any time during the fiscal year.
The ultimate test of success of the process will be the design of the GST base and the rates. It will not be the game‐changer unless it is applied to a comprehensive base at moderate rates. Council could also consider on anti‐profiteering clause to ensure the benefits of GST are passed on to consumers and prices do not spike once levy is rolled out.
There is no doubting that the Indian economy is on a far sounder footing than it was in previous years and is now poised to show robust growth in coming years. The impact of GST cannot be gauged until Government finalizes the GST rate. Government must identify trouble spots in the economy and take pre‐emptive action for the successful roll out of GST regime.
Mr. S.K. Bhatnagar (Secretary General, CBMA)