GST law is a reality now, but don’t expect a quick implementation

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Prime minister Narendra Modi and finance minister Arun Jaitley for achieving what appeared extremely difficult even a few months back – the Goods and Service Tax (GST) Bill is finally a law now with President Pranab Mukherjee’s signature after it got clearance from 15 states.

Passage of the Bill last month by both the houses of Parliament, in itself, has been a major breakthrough after stiff Congress opposition to the NDA’s legislation, but with the law now in place, the real challenge is to bring the states on board to agree to a workable GST framework.

In the absence of an agreed model GST structure, the current law will just remain on paper, and getting all the states on board for this, probably, is going to be a more challenging task than getting the GST constitutional amendment Bill passed in Parliament was.

If FM Jaitley is saying April 1, 2017, date for implementing GST across the country is a stiff target, he is absolutely right in saying so – the ground work and the issues to be resolved would require more time than what is available.

It needs to be understood that a flawed and hasty GST will create more problems than solving the ones for which it is being brought.

After the notification of the GST statute, the government will have to first constitute the GST council comprising the Union and state finance ministers, which will then finalize the GST model law to fix contentious issues like GST tax rates and the mechanism for division of administrative control between the states and the Centre.

It is easy to say that the tax rates under GST must ensure that the revenues of the Centre and states are protected without impacting the common man, but in practice, even a revenue neutral rate of 18% will be hard to sell to all the stakeholders.

So, from here, resolving these issues would require intense consultation that will have serious political connotations also, and will take time.

For meeting the April 1, 2017 target, the model GST law will have to be passed in the winter session of Parliament.

That is a tough ask considering the differences on the tax rates and administrative mechanism, and ignoring the West Bengal like bargaining on GST completely, will not be a good idea.

Though there is no harm in trying for an early implementation of GST from next year, but the better idea would be to target a realistic April 1, 2018 date.

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