FM needs a magic wand to roll out GST by April 2013

Finance Minister P Chidambaram has taken many reformist initiatives in the past two months, and thus, when he says all issues concerning Goods & Services Tax (GST) would be resolved shortly, paving way for its implementation, people believe him. The ground realty though is different and the government may not find it easy to introduce GST next year even if a consensus with the states is reached soon.

Though Chidambaram has not clearly said that GST would be rolled out from April 1, 2013, his statements regarding early passage of the Constitutional Amendment Bill and introduction of GST legislation by the end of this year have made everyone hopeful that the new indirect tax regime might see the light of the day before the country goes for general elections in 2014.

 

At the moment the biggest issue in GST rollout is lack of consensus not just between the Centre and the states but also among various states. Under GST there would be one rate across the country and the decision to increase or lower that rate would rest with the GST Council comprising all the states and the Centre. States fear losing their autonomy and flexibility to tinker with the tax rate.

The list of states’ concerns is not infinite and varies from state to state. But assuming Chidambaram succeeds in bringing all the states on board just the way he convinced the Cabinet about diesel price hike and FDI in multi brand retail, it would still be very difficult to introduce GST next year.

The Bill proposing amendments to the Constitution for allowing states to tax services besides few other changes is being vetted by Parliamentary Standing Committee on Finance. The panel headed by BJP leader Yashwant Sinha is expected to shortly submit its report. Also, Chidambaram has said his meetings with the Empowered Committee of State Finance Ministers later this month would resolve all issues.

“If this finance minister says something with so much confidence it means from the political side he has got it all settled. But that won’t be enough,” said a finance ministry official.  

In the best case scenario, the Constitutional Amendment Bill, after incorporating suggestion of the Standing Committee and the states, can be tabled in Parliament in the Winter Session in December. The Bill will have to be passed by a two-third majority in Parliament. In the current political situation, when allies of the government are opposing the recent reforms, getting a two-third majority won’t be easy.

However, if the government gets lucky and manages that too in the same session, the Bill would be sent to the states and only when passed by half of the states it would become law. Officials said the process would take at least six months. Assuming all goes smooth here too, the Centre would next introduce GST legislation in Parliament, which will go through the same process of referring to the Standing Committee. All states will also have to pass their GST legislation. By that time all political parties would be in election mode and GST could take a back seat in the government’s pursuit of populist measures.