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How soon could the GST become a reality?

01 August, 2016

With the Congress party almost on board, the Rajya Sabha looks set to pass the much-delayed Goods and Services (GST) Bill later this week.

The legislation, which has been in the works for a better part of the past decade, will need to be cleared by the upper house with a two-thirds majority. But even after Parliament gives its nod, the new indirect tax legislation will take at least till April 2017 to get implemented.

Here’s what needs to happen before the GST actually becomes a reality.

  1. Sometime this week (most likely on Wednesday) the government is set to present the constitutional amendment bill for the GST in the Rajya Sabha. Former union minister and deputy leader of the Congress party in the upper house, Anand Sharma, has said that his party was on board, following the Union Cabinet’s decision to drop the 1% manufacturing tax and to extend a guarantee to compensate states for any revenue losses during the first five years of the GST’s implementation.
  2. Since the GST is a constitutional amendment, the government needs to muster a two-thirds majority in the Rajya Sabha, where it is in a minority. Till the Congress came on board, the government was finding this tough, even after various other opposition parties, including the Trinamool Congress, the Bahujan Samaj Party, the Samajwadi Party and the Janata Dal (United) had voiced their support. However, now that the Congress has agreed to support the bill, the government should have no problem in passing the same, barring any last-minute hitch. 
  3. Once passed by Parliament, constitutional amendments need to be ratified by legislatures of at least half the states, before the same can become law. That may not be very difficult as BJP and its allies hold power in 14 of India’s 29 states.
  4. But even after ratification of the constitutional amendment by the states, the government will have to bring three more legislations in parliament, to implement the GST. These would be related to the central, state and inter-state GST laws. These legislations would be key, as they would ‘ring fence’ the tax rate after the Congress dropped its demand to enshrine an 18% cap into the law. 
  5. Moreover, the government would need to ensure that a dispute resolution mechanism, agreeable to the opposition parties and the states, is worked out.
  6. Once these hurdles are cleared, the GST, which would subsume most indirect taxes, both at the central and the state levels, would be implemented. If the constitutional amendment is indeed passed this week, the new tax regime could possibly be enforced from 1 April 2017.

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How soon could the GST become a reality?

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