While stabilising and fine-tuning the goods and services tax (GST) regime after its implementation on July 1 would be critical to its success, the government must also ensure that tough reforms like labour laws besides quick NPA resolution are fast-tracked.
Given President Donald Trump’s mention of the goods and service tax (GST) in his joint address with prime minister Narendra Modi, it is quite clear that the whole world would be watching India on July 1, when the country shifts to an integrated national indirect tax structure. It is hard to deny that in the last three years, India has shown tremendous appetite and confidence in taking bold reform measures, which of course would not have been possible without the support of the opposition benches, and GST is certainly among one of the biggest successes of PM Modi-led government. Even though answers to critical questions like whether the current GST structure is an ideal one, or if we are fully prepared for implementing GST from July 1, may not be an emphatic yes, the very fact that the country’s political system is united in bringing this reform is commendable. Of course, the rates need to be brought down going ahead and the number of slabs also must be lesser than the current four (5%, 12%, 18%, 28%) along with the 3% one for gold and jewellery, but all this besides the streamlining of the GST network and administration has to be a work in progress—delaying GST further to fix these issues would not have been a prudent decision.
In fact, finance minister Arun Jaitley’s letter to the chief minister of Jammu and Kashmir, Mehbooba Mufti Sayeed, urging her to send the state’s concurrence and introduce GST from July 1, along with the rest of the states, has explained to a large extent how important this tax reform is for all the stakeholders.
FM Jaitley has emphasised that, “….in case Jammu and Kashmir is not able to introduce GST from July 1, 2017, it may lead to following adverse impact:
(a) A general increase in prices in the State of all goods being purchased from other States and
(b) Increase in the price of all goods being sold from the State of Jammu and Kashmir to other States which shall have an adverse impact on domestic industry in the State.”
This is because the GST is a destination-based tax and an Integrated goods and services tax (IGST) is levied on all supplies of goods and services made in the course of inter-state trade or commerce—any dealer of goods or service purchasing such supplies from any other state pays IGST to the seller but is able to take credit of this IGST so paid in subsequent sales. So, if Jammu and Kashmir does not join GST on July 1, “for all purchases made by the State from other States after 1st July the dealer shall not be able to take credit of this IGST which shall get embedded into the price of purchased good or service, leading to cascading of tax and increase in price of the said good or service for the final consumers in Jammu and Kashmir’.
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“Similarly, in case of goods or services sold from Jammu and Kashmir to other states, the buyer in state purchasing from Jammu and Kashmir shall not be able to take credit of the local taxes paid to the dealer making the sale, which shall increase his cost of purchase through the embedding of such taxes in the price.” It is, therefore, up to the Jammu and Kashmir state government to decide whether it wants its trade and industry to face competitive disadvantage or join other states to avoid this. This kind of convincing exercise shows the level of confidence that is required to push big reform measures. The real challenge before the government after GST, though, would be getting the labour reform legislations cleared in parliament besides cleaning up the NPA mess.