After a lull of almost a month, the GST Council met last week for the tenth time since its first meeting in September 2016.
After a lull of almost a month, the GST Council met last week for the tenth time since its first meeting in September 2016. The silence on the indirect tax proposals in the recently presented Union Budget was indeed deafening and the government seems to have made it loud and clear that GST would be implemented in 2017. Against this backdrop, the tenth GST Council meeting was expected to clear many pending issues and set the ball rolling even faster for meeting the July 1, 2017 deadline. However, the Council could only finalise the GST Compensation Bill and the finalisation of “other pending” issues has now been slotted for March 4-5.
Agreement on the GST Compensation Bill is indeed commendable as all the doubts of the states concerning the GST compensation have been put to rest, once and for all. The journey of the GST compensation issue which started from being diffident and ended being definitive has been an ardent one. The genesis of the issue dates back to the VAT implementation at the state level done more than a decade ago. The Centre had agreed with the erstwhile Empowered Committee of State Finance Ministers (EC) to compensate the states for VAT losses incurred (100% in the first year, 75% in the second year and 50% in the third year) post implementation. This was agreed between the Centre and the EC without passing of any law. While the states received the compensation albeit some delays, there was lot of heartburn between the Centre and the states on the quantum of the compensation, base year, time frame, etc. Learning from the past experiences, the base year for GST revenue projections has been fixed as FY16 and hence notwithstanding the possibility of revenue loss post de-monetisation (as feared by few states), the states have been fully assured and insured against any tax revenue losses post GST implementation for a period of five years.
The states have been successful in bargaining a good deal, and a formal law is being framed to give the states some comfort in the sensitive matter of tax revenues. It is hoped that the states do not turn complacent on augmenting GST revenues, riding on the compensation promise. A new chapter has been added in the Centre and states relations in the federal set-up of our country. It has perhaps set an example for other federal countries which have similar consumption tax models. The strategy is not to adopt the best practice but to devise the next practice for others to follow.
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The dates for the next Council meeting (March 4-5) seem to be in sync with the budget sessions for most of the larger states. However, given that the all-important discussion on GST rate fixing is still pending, the possibility of the SGST bills to be taken up in the state Budget sessions is completely ruled out. It is now clear that if the July 1, 2017, implementation date is to be achieved, the states have to call for special sessions of their respective assemblies for passing the SGST law, as was done for ratification of the 122nd Constitution Amendment Bill.
Coming back to the Union Budget session, interestingly, according to a PIB release, the Union minister for parliamentary affairs has stated that the first part of the Budget Session has yielded a total of seven sittings of Lok Sabha and eight sittings of the Rajya Sabha. The productivity of Lok Sabha and Rajya Sabha in terms of utilisation of time during the first part of Budget Session is 112.65% and 96.74%, respectively (till February 9, 2017). He appreciated the cooperation received from all the members of both the Houses in running the business smoothly and he hoped that the second part of the Budget session 2017 would also receive such cooperation from all the members of Parliament. While the results of the state assembly elections are still some time away, notwithstanding those, it is expected that the productivity of the two houses remains the same, even if it doesn’t improve. One wonders if these productive hours could have been put in the earlier sessions of the Parliament, the current pressure to reach the finishing line for GST before July 1, 2017 would have been certainly minimised. Better late than never!
The smooth running of Parliament in the remaining part of the Budget session will help the GST implementation plan in a big way and the crucial CGST, IGST and GST Compensation Bills could then be passed without any further delay. If this is achieved within the term of the current Budget session (scheduled to run up to April 12, 2017), the ball will then roll onto the state governments’ courts where the states will have to quickly finalise their GST laws (by simply adopting the Model GST Law) and get the same passed with a simple majority in their respective assemblies. After all this, the GST laws (including the rules) would get finalised and industry can finally go in for making the relevant IT/operations/business changes.
To be ready with all these changes by July 1, 2017, is certainly an ambitious target, achievable but not impossible. Needless to add, no further delays can be afforded if the July 1, 2017, deadline has to be met. Much depends upon the political mood post the announcement of the state polls results scheduled for March 11, 2017. The crucial discussion on the GST rates has to happen within the month of March 2017. Many a distance needs to be covered between now and March 11 to ease out the pressure on every stakeholder in the race against time for the GST to see the light of the day on July 1, 2017!
The author, Rahul Renavikar is the CEO of Acuris Advisors Pvt. Ltd. Views are personal