There is no doubt that clearing the path for the implementation of goods and services tax (GST) by prime minister Narendra Modi and his team is a big breakthrough. But, the GST being adopted is not the best one with higher rates, cess, and exemptions. So, the impact of GST on people and states’ finances may turn out to be a big issue in 2019 Lok Sabha polls, prompting necessary changes.
With the Budget Session finally paving the way for the supporting goods and services tax (GST) laws, the new tax regime is set to be implemented before September 16, as stipulated in the GST constitutional amendment legislation.
The government machinery, both at the central and the state level, will now be busy with the implementation of the goods and services tax (GST) – and, whether it is implemented from July 1 or September 1, 2017 will be remembered in the history as the year of GST implementation by the Bharatiya Janata Party (BJP), which would be seen as a big political achievement.
That the preparation for GST is coinciding with the completion of the third year of the NDA government led by BJP at the centre in May, would mean that Prime Minister Narendra Modi and his team will try to project this as a major gain, and rightly so, as at one point of time, it appeared that the GST will also meet the same fate as that of land acquisition law changes.
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But, they would do well by keeping in mind that the current high GST rate structure – with four slabs of 5, 12, 18 and 28 per cent along with the cess on items like luxury cars and soft drinks to compensate losses of the states – would remain a work in progress till the number of rates are further reduced and they are moderated to much lower levels.
This makes the whole GST implementation exercise, whether it is adopted from July 1 or September 1, extremely challenging, especially because the impact of GST on consumers and states’ revenue will be more or less clear by the time the political parties start preparing for the 2019 Lok Sabha polls in the latter half of 2018.
So, the impact of GST on people and states’ finances will certainly be amongst the major issues for the next general election, and this is where, the ability of PM Modi and his team will have to be on their toes to explain the benefits of the new integrated national indirect tax structure, while keeping the discussion and modification window open for bringing in the necessary changes.
It is good that there is a realisation across the board that the GST being implemented today may be a workable one at this juncture, but it is nowhere near the best structure which would have meant the minimum number of slabs with moderate rates and minimal exemptions instead of the current structure that has kept items like petroleum, alcohol and real estate out of the GST ambit.
In all probability, GST modification will turn out to be one of the major responsibilities of the next government at the Centre, and PM Modi needs to remember this – selling GST to the people will be far more difficult than demonetisation of the old 500- and 1,000-rupee notes.