Finally, there seems to be some progress in GST implementation, with States at least trying to reach a consensus of key issues.

The last six months have seen a series of developments around the Goods and Services Tax (GST), thanks to the Finance Minister’s efforts to break the impasse between the Centre and the State Governments, leading to the formation of committees to go into key issues such as design, base, rates and compliance.

While these augur well for GST, with elections in 2014 and a divided polity at the Centre, though, the likelihood of the actual implementation of the new nationwide indirect tax regime still remains unclear.

In this backdrop, it is important to understand and analyse what has really progressed in the last few months and how some of these positive developments can become important steps for the eventual implementation of GST.


First and foremost, the design that seems to be evolving will be far from the flawless, ideal GST one would have imagined.

But given our federal structure, a dual GST with an integrated (Central plus State) tax on all inter-State sales and transfers, is a model that is practical and will at least enable implementation in the near future.

What would be really important and critical in the design will be the rules relating to ‘place of supply’. This is necessary to bring about clarity as to which State would have the jurisdiction over transactions in case of services that are complex.

The place of supply rules unveiled by the Centre during the rollout of the ‘negative list’ of goods and services could be a starting point.


The base will be truncated, with real estate and alcohol being excluded from GST. There is also a doubt as to whether petroleum products will be part of the GST base, with States being able to tax over and above and outside the chain.

The issue of its being outside the GST regime in the Constitutional Amendment Bill has been settled. A decision to include within the GST base now rests with the GST Council, which is welcome.

The emergence of a consensus on an aligned exemption list is also a welcome step, with the Centre willing to prune its current exempted list of around 243 goods under excise to at least the 96 as under State VAT (value added tax).

A common exemption list will ensure fewer items will remain outside the GST net. Similar alignment is also being planned for services and will necessitate a re-look of the ‘negative list’ by the Centre. Another area of debate has been the threshold for GST.

The current recommendation post the recent Mussoorie meeting of State Finance Ministers seems to be Rs 25 lakh.

The Empowered Committee (EC) under Bihar’s Finance Minister, Sushil Kumar Modi, has sought inputs from the States. The base is important because it directly decides the rates; a truncated base will invariably lead to high rates.


There is some degree of consensus around the general contours of rates. There will basically be three rates: standard, lower and a separate one for bullion. The standard rate will be a floor rate with a band of 3 per cent. The revenue-neutral rate (RNR) of 12 per cent suggested under the flawless GST with a wide base will be a distant dream; with a truncated base, the peak rates would be high.

RNR rates are still a point of debate and will be one of the final issues for a consensus between the EC and the Centre. The EC has asked the National Institute of Public Finance and Policy to recommend an RNR rate. The States will be given flexibility with a band. The hope is that goods are aligned across States within rate baskets so as to avoid issues of tax arbitrage that we are seeing today in VAT.


Ease of compliance for taxpayers under GST was also one of the key issues that the committees went into as part of their deliberations.

One of the recommendations was that only taxpayers with turnover above Rs 1.5 crore be subject to dual control of the Centre and States, while those below that threshold be under the control of the States for ease of compliance. The EC has further proposed a compounding scheme of flat tax of 0.5 per cent for traders with turnover of Rs 25-65 lakh in order to ease compliance to small taxpayers. Another welcome step is consensus among the States that it is better for all to implement GST together. The option for States to join GST thus seems to have been settled, at least for now. To quote Modi, there is consensus on 80 per cent of issues, which is certainly positive. But there are a host of other important steps to be taken for GST to move towards realistic implementation. First and foremost is the passage of the Constitutional Amendment Bill in both houses of Parliament. It requires political consensus. In the current scenario, that seems to elude most Bills. One isn’t sure whether the Constitutional Amendment Bill will be presented even in the next monsoon session. Another issue is the readiness of the IT infrastructure which is a key for GST implementation and seems to be still some time away.

On the whole, there is no clarity yet on when GST will be implemented. But the developments in the last few months should certainly be viewed as positive steps towards a roadmap of sorts. That should be expected to be long and arduous in our currently polarised polity.