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A Step Closer To GST!

Published on Thu, May 07,2015 | 10:57, Updated at Thu, May 07 at 11:21Source : 

On 6th May, 2015 the Lok Sabha passed the Constitutional (122nd) Amendment Bill (for Goods and Services Tax) with 2/3rd majority. The Bill will be next be tabled before the Rajya Sabha, and thereafter requires the ratification of half the State Legislatures. This is a compilation of several expert tax opinions on the development.

Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP
As widely expected by the industry, the GST related Constitution Amendment Bill was passed with the required majority by the Lower House of the Parliament.  It is indeed a significant step towards implementation of the single largest indirect tax reform in India.  However, passage of this bill by the Upper House of the Parliament, as well as ratification by more than 50 percent of the State Legislature is imperative for the implementation of GST in India. The aforesaid bill has been passed with amendments and therefore the impact of the same will only be known once the same is made available in the public domain.

The Finance Minister stated that the revenue neutral rate of 27 percent was very high and not based on recommendation of the Government or the Empowered Committee.  The statement that it is expected to be significantly diluted allays fears of the industry and is welcome.  It was also interesting that while responding to a specific question on the cascading effect on additional tax, the Finance Minister stated that the objective was to provide compensation to the states in which goods were manufactured, no explanation was provided on how the cascading effect of levy of such additional tax would be minimized.  It would be useful to wait and watch the views of the proposed GST Council which will eventually have a final say in these matters.   

Satya Poddar, Tax Partner – Policy Advisory Group, EY India
Passage of the GST Constitutional Amendment Bill is indeed a historic event and a turning point in the evolution of fiscal federalism in India.  It is only the first step in the long journey ahead for the design and implementation of the GST.  Yet, it marks the end of the policy paralysis which has stymied the GST for the past seven years.  It creates an enabling framework for replacement of the current patchwork of Centre and state taxes by a single tax, harmonized across the Centre and States, which is simple, fair, and efficient. The devil is in the detail.  Let us hope that, with political wrangles behind us, the governments will roll-up their sleeves and design a truly simple and rational tax which will earn it the label of game changer.
Satish S. , Director and Abhishek A Rastogi, Associate Director - Indirect Tax, PwC India
GST has been recently inviting much debate and discussion by experts all over the country. The Finance Minister, Mr. Arun Jaitley, had announced in the Union Budget 2015, the Government’s intention to introduce Goods and Services Tax (‘GST’). GST implementation looks to become a reality with Lok Sabha today unsurprisingly passing the GST Constitutional Amendment Bill with the required 2/3rd majority. The Finance Minister reiterated that the whole process of indirect taxation will change once GST is implemented and requested all the political parties to rise above the partisan politics. Today, the Finance Minister also reiterated that GST implementation will result in uniformity of taxation and that there will not be any tax cascading. He specifically mentioned that reference of the Bill to the Parliamentary Standing Committee would unnecessarily delay the process of the GST implementation and that the Standing Committee has already gone into these issues which have been unanimously approved. With respect to the rate, the Finance Minister affirmed that the revenue neutral rate of 27 percent was very high and that the GST rate would be lower than 27%.

Today, the Constitutional Amendment Bill was voted clause by clause in the Lok Sabha. The Constitution is proposed to be amended to introduce the goods and services tax for conferring or concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax. Accordingly, Article 246A was proposed to be inserted for providing powers to the Legislature of every State for making laws with respect to goods and services tax imposed by the Union or by such State. Secondly, Article 269A was proposed to be inserted for apportionment of taxes between the federal and State Government. Thirdly, compensation to the States would be provided for loss of revenue arising on account of implementation of the GST for such period which may extend to five years.

It would be interesting to observe how the Bill is addressed in the Rajya Sabha and the State Legislatures. It appears that BJP would have a game plan to meet the numbers there as well. It is hoped that the milestones such as draft legislation, implementation of GST Network and consultancy with stakeholders are achieved. The progress in the subsequent months will determine whether the Finance Minister will be able to meet the deadline of 2016.

Harishanker Subramaniam, National Leader - Indirect Tax Services, EY India
The passage of the Constitution Amendment Bill in Lok Sabha is a welcome step though the acid test would be its passage in Rajya Sabha. Any reference to Select Committee as some political parties want would only defer the passage to the monsoon session which can delay the April 2016 implementation. The FM’s statement that 1% origin tax will not be cascading though welcome needs to be reflected in fine print.

Sachin Menon, Partner and Head - Indirect Tax, KPMG
The  passage of the GST bill in the Lok Sabha gives confidence to the trade and Industry that majority of our lawmakers are serious about introducing the much awaited fiscal reforms next year. It is time for the lawmakers to show that when it come to the national interest, we are above petty politics. I hope Rajya Sabha passes the bill positively.

Amit Kumar Sarkar, Partner, Grant Thornton India LLP
Passing of GST Bill by the Lok Sabha is truly a milestone achievement in the right direction for India Inc. which is looking for much needed simplicity and transparency in the tax structure. However, it would only be a half job done given the uphill task which the Government may have to grapple with in bringing in similar majority at the upper house.

Nihal Kothari, Executive Director, Khaitan & Co
The introduction of uniform Goods and Service Tax throughout the country is now on horizon with passing of the 122nd  Constitution Amendment Bill by Lok Sabha today. GST will replace multiple indirect taxes levied by central and State Government such as excise duty, service tax, VAT, entry tax etc. It is going to change the way people do business. If it is properly administered it will increase GDP rate by 1 to 1.5%, Tax-GDP ratio up to 2% and reduce the cost of indigenous goods up to 10%. Hence it is win-win for all stake holders including industry, State and Central Government revenue and the consumers.

The proposed GST will be uniform across the country which will reduce the cost of compliance and litigation. Availability of seamless credit throughout the value chain will remove the cascading effect of taxes on cost of goods and services thereby making indigenous manufacture more attractive. Consequently the import and export parity will change under GST regime.   

The investors need to take note of this mega tax reform while making any investment in India as the cost of doing business in India will change significantly. GST will change the way enterprises do business in India. It will lead to consolidation of manufacturing to get economy of scale without any tax disadvantage & efficiency in supply chain.  

The existing businesses will have to restructure their business structure and processes to remain profitable and competitive. This mega change will have significant opportunity to leverage on GST and do value analysis of their business model and processes and re-engineer to optimize benefit.

In the short term the transition to GST will need to be managed efficiently to ensure tax compliance and to protect unutilized tax credits while ensuring continuity of business without hiccups.

Santosh Dalvi, Partner - Indirect Tax, KPMG in India
It is indeed a great milestone to achieve as it has happened after a decade of efforts by all concerned. Thank you to all the legislators who voted for this. Hopefully, the bill is passed in the upper house in this session of parliament itself. This will help the Central Government to achieve their target date of 1 April 2016 for a GST rollout. Still there is a lot of work which needs to be done in terms of preparation for the government such as appointment of a GST council, draft legislation, GSTN IT infrastructure, overall change management, etc. However, it will bring a lot of positivity around GST implementation in India. Of course, for the industry it means a lot of internal preparation is required within 11 months of time.

Chandrajit Banerjee, DG, CII
We welcome the passage of the Constitution (122nd Amendment) (GST) Bill, 2014 in Lok Sabha as a milestone reform which would help reduce tax-on-tax and would be beneficial to the industry. We are hopeful that the Bill would get the assent of the Rajya Sabha also in the current session of Parliament with the support of all the political parties. In our view, this is the first step in making India a single market. In terms of providing incentive to industry, this is the most extensive and far reaching reform in the tax domain, which would encourage industry to grow significantly.


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