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Tax & Regulatory

Draft GST bills ready, states to vet tomorrow

Drafts of the three proposed legislations that will govern the goods and services tax (GST) at the central and state levels are ready and the government plans to place them before the empowered committee of state finance ministers for vetting at its meeting on Tuesday.

Later, the three draft legislations will be put in the public domain for comments, as also to educate the corporate sector on how the government plans to move towards the new tax regime.

The goods and services tax council, to be set up after the Constitution amendment bill is passed for providing legal basis for the new taxation regime, will be the final authority for approving the three bills.

By moving ahead with the background work on GST, the government is also trying to send across a message that it is ready, but political opposition is holding back the new tax that it says will add 1 per cent to 2 per cent to India’s gross domestic product. A committee has been constituted under chief economic adviser Arvind Subramanian to suggest the rate of goods and services tax so that neither the centre nor the states lose revenue.

That report, originally expected in late August or early September, should now be ready by October, those in the know of the subject told Financial Chronicle.

By letting industry know what’s in store at an early stage, the government plans to give them enough time to prepare for the regime change. The move will blunt any criticism or complaint from industry on the ground that it did not have enough time to study the new tax and prepare for the eventuality, Amit Kumar Sarkar, partner at Grant Thornton India said.

The council will be the highest decision-making body on GST matters. It will be headed by the Union finance minister and will include the state finance ministers as members. The centre’s vote in the council will have one-third weightage, but all its decisions will have to be approved by three-fourth majority.

Grant Thornton’s Sarkar, however, expects GST to roll out from April 2017 at the earliest, even though the government had earlier talked about introducing the tax by April 2016. The finance minister has stopped talking of that deadline after the government failed to get the Constitution amendm­ent bill passed by Parliament. “Even the date of October 2016 for introducing the new tax is quite optimistic, looking at the amo­unt of work that still needs to be done,” Sarkar said.

The first brick in the edifice for GST is yet to be laid. Opposition by the Congress has stalled the passage of the Constitution amendment bill in the last two sessions. Going by the statements of its leaders, it is highly unlikely that it would sail through the winter session of Parliament.

The government had earlier proposed to call a special sitting of Parliament before the winter session to get the bill approved, but subsequently dropped the idea. Now it is thinking of advancing the dates of the winter session that is normally held in December. Even if the bill is passed in the winter session, the Budget session would have commenced by the time 50 per cent of the states legislatures approve those amendments.

Only after that can work start on passing the three bills on central GST, state GST and inter-state GST, which could happen by the winter session of next year. Even then, industry would require at least three to four months to prepare for the tax regime change. So, at best, GST can only be implemented April 2017 or even later, in October 2017, Sarkar said.

The article appeared in the Financial Chronicle. The article can be found here.