Finance Minister Arun Jaitley has already expressed apprehension over meeting the original deadline of April 1, 2017, for the GST rollout. “It’s very stiff, we are running against time,” he said while addressing the Economist India Summit on Wednesday. Mr Jaitley is right in expecting a rocky road ahead, as there is much to be done in terms of procedure. In particular, there are three separate Bills to be passed — two of which, relating to the central GST and inter-state GST, need to be passed by Parliament and one, relating to the state GST, by the various state legislatures. Another key requirement is the constitution of the GST Council, the representative body comprising the Union finance minister as well as state finance ministers. It is this council that will take a final call on all contentious issues such as the applicable rates, etc. Last, but not the least, is the final leg involving the laying down of the technological backbone of the GST network so that it can be rolled out seamlessly. Even companies across the country will need some time to re-align their systems and processes for the GST regime.
To be sure, meeting the deadline isn’t just difficult because of a paucity of time. The fact is that these procedures – the three Bills in question and the working of the GST Council – will have to deal with the nuts and bolts of the new indirect tax regime. And there is no dearth of issues that can either delay the implementation of the GST regime or, indeed, make it a sub-optimal outcome. Take the decision about the revenue-neutral rate, for instance. Mr Jaitley has said the tax rate should be such that the finances of the Centre and states are protected without increasing the burden on the common man. But therein lies the rub. The government has had to carve out exemptions, such as some petroleum products and alcohol, to get the states on board. But the exclusion of these products, which have a considerable share in existing indirect taxes, will make it difficult to keep the overall GST rate low. This could lead to a scenario where people are unhappy with the higher-than-expected rate. On the other hand, reducing exemptions will lead to resistance from state governments and Opposition parties.
There is also the concern about the Centre’s own finances. In its attempt to win over states and the people, it can’t take a hit on fiscal deficit. Finding the elusive revenue-neutral rate is not the only thorny issue. There are several other issues – such as the power to scrutinise assessees, where states are pushing for exclusive control for firms with an annual turnover of Rs 1.5 crore – that need to be ironed out in the coming days and months.