GST will take about a year to become a reality
Photo Credit: Shah Junaid/VCCircle

The Narendra Modi government on Wednesday introduced the constitutional amendment bill to usher in a unified tax regime in the country. The Goods and Services Tax (GST) is perhaps the single biggest tax reform in the country since independence.

Although there is now a broad political consensus on the much delayed legislation, the ruling Bharatiya Janata Party (BJP) and the principal opposition Congress party on Wednesday bitterly contested the bill’s ownership, with each side calling itself the true champion of the legislation.

However, the actual implementation of the GST, which will subsume almost all the indirect taxes, is still some time away.

Once the Rajya Sabha clears the bill with a two-thirds majority (this could happen in a few hours), 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. 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. Moreover, several states including West Bengal, Bihar, Karnataka and Uttarakhand, ruled by parties opposed to the NDA are also likely to ratify the amendment, since their ruling parties have vouched support for the same.

2. But even after the ratification of the constitutional amendment by the states, the government will have to bring three more legislations in Parliament, to implement the GST. These will be related to the central, state and inter-state GST laws. These legislations will be key, as they will ‘ring fence’ the tax rate after the Congress dropped its demand to enshrine an 18% cap into the law.

3. Moreover, the government will need to ensure that a dispute resolution mechanism, agreeable to the opposition parties and the states, is worked out.

4. Once these hurdles are cleared, the GST, which will subsume most indirect taxes, both at the central and the state levels, will be implemented.

If this process goes as per plan, and there are no major unforeseen obstacles, India will have an overhauled indirect tax system by 1 April, 2017.

Corporate India is enthused at the possibility of GST becoming a reality. Industry lobby group, the Federation of Indian Chambers of Commerce & Industry (FICCI) has welcomed the fact that the GST could soon be passed by Parliament. “From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25 to 30 per cent. Introduction of GST would make Indian products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth,” The Indian Express cited FICCI as saying.

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