The prospect of the Goods and Services tax (GST) bill being passed in the winter session of Parliament looks uncertain. Although the BJP wants it passed at the earliest, but the growing acrimony between the Congress and the ruling dispensation is likely to take its toll on Parliament’s legislative business. However, many foresee good chances of it being passed in the winter session. “The political understanding reached between Prime Minister Narendra Modi and Congress president Sonia Gandhi on GST may facilitate the GST bill’s passage in the winter session,” says Bimal Jain, taxation expert with A2Z Taxcorp LLP. The government may agree on the GST rate of 18% as demanded by the Congress and may also abandon the 1% levy on the inter-state sale of goods that the opposition party has been pressing for.
If the GST — a game changer legislation aimed at simplifying India’s indirect taxation structure — is not passed in the ongoing session, it will mean that it cannot be implemented by 1 April next year, the bill’s latest deadline. Its numerous postponements are hurting the investment climate in the country.
“India needs GST urgently as a GST would mean simplified indirect taxes and its simplified compliances,” says Pratik Jain, partner with KPMG India. Today’s taxes are regressive in nature, with the cascading effect of taxes (one tax on another) acting as a huge deterrent to investment. A single rate of GST will make India, like its global counterparts, a unified market in the true sense. Moreover, the GST should lead to an enhancement of the nation’s GDP as the tax net will get widened and tax leakages will get reduced.
The Congress’ demand for the abolition of 1% levy on the inter-state sale of goods is a valid demand, says Jain, as the levy distorts the supply chain. For the same reason the industry is not very happy with the tax and favours its abolition. Fixing of the GST rate at 17-18%, another demand from the Congress, may also be agreed upon by the government. But the BJP is insisting that the flexibility to alter future GST rate should be left to the GST Council, having representatives from the Central as well as the state governments. Economists say that 18% GST would actually make goods cheaper for consumers as the effective rate of prevailing taxation are above 24%.
This would create more demand for goods, thus incentivising manufacturing in the country. But the Congress’ insistence to make 18% GST rate permanent for all time to come is being described unreasonable. Historically, no tax bill had recommended a particular rate of tax (incorporated) in the bill, says Jain.