Forecasting the likely date of roll out of GST is fast becoming a board room conversation. Businesses are concerned as they need to be prepared on time.
By Divyesh Lapsiwala, Tax Partner, EY India
Forecasting the likely date of roll out of GST is fast becoming a board room conversation. Businesses are concerned as they need to be prepared on time. If the likely date is 1 April 2017, some organizations with pan-India setups are already feeling that the remaining eight months may not be sufficient.
The cliff-hanger of course is the passage of the Constitution Amendment Bill (‘CAB’). It appears that the Government is in a good position to achieve this during the current session. This is necessary, as without this amendment, GST cannot be implemented. The CAB alters the taxation powers amongst the Union and the States, to permit both to simultaneously tax all goods and services collectively.
Let’s work with the assumption that the CAB is carried in the Rajya Sabha in the next couple of weeks. It would be relevant to understand the path forward, and of course the GST roll-out timeline. The next steps post passage of CAB would involve ratification of the amendments in the CAB by Lok Sabha, which completes the approval process at the Parliament. Post this, the steps are approval by State Legislative Assemblies, setting up of GST Council, finalization of the GST Law, enactment of GST Law at the State and Central Level. With the majority enjoyed by the ruling party in the Lok Sabha and the support of non-aligned parties to the Bill, passage in the Lok Sabha after approval by Rajya Sabha should not be a challenge at all.
Let’s say this is achieved by mid-August 2016.
CAB ratification by State Legislatures: Article 368 of the Constitution of India requires ratification of the CAB, approved by the Parliament, by 50 percent of the State Legislative Assemblies. This means 15 States of the 29 States in India. A significant point of difference between Parliament and State Legislatures with regard to the CAB, is that while a 2/3rd majority is required in the Parliament to carry any amendments, in the State Legislatures, only a simple 50% majority is sufficient. Further, with the BJP (ruling party) and allies having majority in 14/30 state legislatures, the ride of CAB in the States should be brisk and less turbulent.
As it is a process to be completed over 15 states, it is likely that the approvals may be in place by October/ November 2016. Post this, Presidential assent will validate the CAB into an amendment in the Constitution.
Formation of GST Council: The CAB empowers establishment of a GST Council for recommendations on rate of tax, exemptions and any other matters relating to GST. GST Council will have a dominant participation from State Finance Ministers. The Central Government’s approach of ensuring a consensus on broad issues while awaiting approval of CAB is not only a smart step but may reap significant advantage in curtailing the overall process timeline at the GST Council. Having said that two things need to happen: the Council should be put in place almost immediately once the State approvals are in place and two, the Council will have to fast track the recommendations it needs to provide on the following matters:
- Model GST law to be adopted by Centre and States
- Rates of tax, and the rate-bands for SGST component
For finalizing the Model GST law, industry feedback would have to be on-boarded. The feedback is on wide ranging issues, given that it’s a completely new legislation, and therefore making the law more acceptable to the tax payer may not be a simple 2-3 week process. If this is started post formation of the Council, we are definitely looking at huge pressures on the 1 April 2017 timeline. I personally believe that the Empowered Committee (which anyway represents States and therefore is like a quasi-GST Council), is likely to provide a platform to trade for representations as a parallel process. This is, in my view, necessary if proper feedback is to be incorporated in the GST Law.
Assuming all falls in line, GST Council may be able to finalize the Model Law by November/ December 2016.
Release of Final Law & Enactment: Once the GST Law is frozen (atleast temporarily) post few rounds of industry feedback, it would have to be adopted and enacted by Centre and States. As such, one of the relevant aspects is that the Law recommended by the Council is only a Model law, and States are likely to have some flexibility to amend it. If States initiate their process of reviewing and amending the law post this recommendation, again it will impinge on achieving the timeline. However, as States are key members of the Empowered Committee and Council, it is hoped thathe adaption of the Model Law will be seamless and immediate.
Once the laws are finalized, by Centre and States, the respective GST Bills are required to be enacted in the Parliament/ Legislatures. At the Parliament, enactment should not be a challenge as GST Bill is a Money Bill and therefore passage by the Lok Sabha by way of a simple majority should suffice. At the State level also, simple majorities are required.
This is therefore likely to happen in the Budget sessions ie February/ March 2017. This is definitely very close to the go live dates.
GSTN rollout: The first question is whether GSTN rollout is actually critical for implementation of GST. It can be argued that GSTN is not a mandatory requirement; it’s only a better quality process to establish ease of doing business and implement a self-policing mechanism. Therefore, in my view, GSTN is not really a pre requisite.
In any event, based on information currently available, the Government may be well on track for GSTN to be ready in time, at least the basic features like registration, tax payment and returns. I am also certain that GSTN will make available the APIs (or templates of reports to be filed by taxpayers) very soon. This will provide clarity to taxpayers on the IT related preparation for R2R (record to report) part.
It’s a tough one for sure! It is hard to say at this stage whether it will be 1 April 2017. But, as this is an indirect tax, it need not start only on 1 April. I will not be surprized that the reset date is deferred by a quarter or so to 1 July. Yes, this may not be fully optimal, yes, we may not get it the best form of GST in round one; but the question is – whether a sub-optimal GST is better than no GST – a question which may have different answers for different sectors.
Generally speaking, in my opinion, for organizations with muti-state presence will have atleast start making their GST plans, and identifying the work-streams that will get impacted. This will cut across tax, IT, process, accounting and HR. A cross functional impact event like GST, will therefore require planned and structured execution to achieve organizational goals.
(Views expressed are personal)