The UPA government introduced the direct benefit transfer (DBT) scheme from January 1, 2013, without adequate preparation and states’ support, and it failed miserably. The same can happen with the goods and services tax (GST) if it is brought without creating a strong infrastructure support, and pro-active implementation by the states rising above politics.
The finance ministry’s presentation on the next steps for implementing the goods and services tax (GST) from April 1, 2017 has also listed the challenges ahead and the first one among them is the calculation of the revenue base of the Centre and states, along with compensation requirements of the Centre.
Besides finalisation of the GST rate structure and also the list of exemptions, forming a consensus on a Model GST Bill, threshold limits, compounding limits and cross empowerment to mitigate ill-effects of dual control, are among the other challenges.
Successfully handling of these issues is as difficult as the passage of the GST constitutional amendment Bill in the Rajya Sabha was.
Getting states on board for implementing a comprehensive, integrated tax structure throughout the country would require deft handling and prime minister Narendra Modi and finance minister Arun Jaitley must keep in mind the UPA government’s mistake in the implementation of the direct benefit transfer (DBT) scheme, another big reform measure which the NDA dispensation is now handling successfully, without the required preparation and support from the states.
PM Modi and FM Jaitley may get swayed by political considerations to implement the GST now from April 1, 2017, so that they can project it as a game changer in the next Lok Sabha polls in 2019, but there is a strong possibility that if it is done in haste without the required preparation and support, the whole effort may boomerang on the NDA like what happened in the case of DBT with the UPA.
Creating a consensus on the GST rates and model law is a difficult task and it must be given ample time so that the states are more than eager to accept the new framework when the GST is implemented finally.
Handling the compensation mechanism is another dicey area — if it is not carved out with checks and balances, it can derail the GST. The compensation formula needs to be completely transparent and it should be absolutely clear to the states that they will not be able to exploit compensation as a window to err on the implementation of the new tax regime.
While dealing with these issues will be a crucial factor that will decide whether GST can be introduced from April 1 next year or not, even if both the centre and the states work at the optimum speed from now, there is also a lot of administrative work left.
First, the GST constitutional amendment Bill has to be ratified by 50% States and then a cabinet approval is required for the formation of GST Council , which will then recommend the model GST law.
Once that is done, the union cabinet will have to approve CGST and IGST laws by the Centre and similar approvals will be required from the states for the SGST laws.
If a consensus is reached on sticking to April 1, 2017 deadline, the CGST and IGST laws in the centre and SGST laws in the states will have to be passed in the winter session after which GST rules could be notified — this obviously looks extremely ambitious.
So, rather than keeping April 1, 2017 as a sacrosanct date, PM Modi would do well by making it clear that he would not like to commit the DBT mistake and wait for the resolution of all contentious issues, and not bring in GST in a hasty manner.