No Roadmap Announced But Opportunity Not Lost Yet!

India Inc was eagerly looking forward to the first union budget of the Modi Sarkar (BJP led NDA Government) hoping for some positive announcements which could well set this government’s manifesto of good days aka “acche din”. The government, headed by Narendra Modi, has several big expectations to meet as it portrays itself as a business-friendly regime, with specific emphasis on tax reforms in its political agenda, as a step towards eliminating/reducing the so called “tax terrorism”.

In its election manifesto, the BJP had clearly stated its intent to rationalise and simplify the existing tax regime and bring on board all State governments in adopting the uniform Goods and Services Tax (GST) regime after addressing all their concerns. A short while before the budget, the statement of the Empowered Committee Chairman Abdul Rahim Rather after his meeting with Finance Minister Arun Jaitley was “I can’t give you exact date but I think it will not take much time. The government of India is very much interested to have this tax reform introduced. Every state is on board”.

While the above would have certainly boosted the expectations and confidence of the industry, the Union Budget somewhat turned into an anti-climax on GST front. FM’s comments on GST were confined to all of few lines with the usual ambiguous promises of giving thrust to introduce GST and bringing all State Governments on board by meeting their concerns, to create a platform for introduction of GST, but unfortunately, with NO TIMELINES and NO ROADMAP yet again.

If one goes back in time to track the developments that have happened on GST, the concept of the GST was first highlighted by the then Finance Minister P. Chidambaram, in his Budget speech on 28 February 2006 wherein he proposed to set 1 April 2010 as the deadline to introduce GST. As we stand in mid-2014, GST is yet to become a reality and this very fact has been subjected to mockery time and again. But, can it be said that nothing has been done in last 8 years to make this dream a reality? The answer is NO.

Progress towards GST: The transition from the current indirect tax structure to the GST regime requires major policy changes and clear consensus between the Centre and State Government(s), backed by strong political will. In 2008, the first Empowered Committee Report (EC Report) on GST highlighted the key features of the proposed GST regime. In 2009, the first discussion paper was issued by the EC introducing the concept of a ‘Dual level GST’ for India, followed by a task force report on GST by the 13th Finance Commission. In 2010, positive feedback/comments were received by the Department of Revenue on the discussion paper and the Central Government assured states that it will provide adequate compensation (for loss of Central Sales Tax on account of introduction of GST). In 2011, the draft constitutional amendment bill was introduced in parliament, paving the way for the Central and State(s) governments to be appropriate authority for levying GST. In 2013, the Standing Committee on Finance presented its report on the draft GST Constitutional amendment bill, suggesting certain measures/modifications.

Road ahead: Now, with no such concrete announcements having being made, India Inc is disappointed but is still hoping to witness some series of events that would unleash the Government’s intent in bringing this big-ticket reform few steps closer to its logical conclusion. And if one could read their minds, they strongly believe that the remaining part 2014 is time enough for the Modi government to put in some real fuel to set the engine roaring. With so much ground work having already been covered, the need of the hour is a clear roadmap for GST, with specific focus on some realistic timelines. The roadmap should specifically provide for the manner and timelines with regard to addressal of some of the most critical aspects such as States’ autonomy and concern over possible loss of revenue on account of CST abolishment and revenue shift in favour of consuming States rather than supplying States. Other than that, come the issues around finalization of constitutional amendments and GST structure such as the IGST mechanism, rates, exempted list of goods and services, draft legislation, etc. These are very much achievable in the next 6-8 months given that a lot of groundwork had already been covered in the last few years around these aspects even though at the backend.

According to a study, introduction of GST is expected to boost India’s GDP by 2-3 per cent and increase exports by 3-6 per cent, which shall not only help reduce the current fiscal deficit but also give the much needed boost to the economy. Also, it is believed that while GST should certainly lower the overall cost of doing business, yet it should lead to increase in the overall tax revenues for government.

Considering the present state of Indian economy, which has borne the brunt of global slowdown and policy paralysis in the last few years, some concrete announcements occasioning speedy progress towards GST shall go a long way in restoring India Inc’s confidence as well as the country’s image globally as a preferred investment destination. All one can say at this juncture is that the government should immediately get into some real brainstorming and aim to make some positive announcements towards GST within this fiscal, now that the FM has expressed strong hopes to resolve the existing combats in the next 6 to 8 months. However, the same should neither be too hasty nor too cautious, for India to reap timely and apt benefits out of an eased tax structure of the likes of GST. But what better time than the first year itself for a brand new Government to make its presence felt and create a dent!!!

By Amit Sarkar, Partner, Indirect Tax, Grant Thornton India LLP & Krishan Arora, Director, Grant Thornton India LLP

The article appeared in Business World. The article can be found here.