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GST clears Lok Sabha, gets closer to rollout deadline of April 2016

In a major triumph for the Prime Minister Narendra Modi-led government in making the Goods and Services Tax (GST) a reality, the Lok Sabha on Wednesday passed the Constitution Amendment Bill for unified indirect tax regime in the country with a majority vote of 352 against 37.

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In a major triumph for the Prime Minister Narendra Modi-led government in making the Goods and Services Tax (GST) a reality, the Lok Sabha on Wednesday passed the Constitution Amendment Bill for unified indirect tax regime in the country with a majority vote of 352 against 37.

This was, however, only the first step. The real test for it would be crossing the hurdle of opposition from Congress in the Rajya Sabha (RS), where it is in minority.

Amendment of the Constitution needs two-thirds of both Houses to vote in its favour.

Amit Kumar Sarkar, partner, Grant Thornton India LLP, said RS would be the last hurdle the government would have to scale over. "Once, that was done, the enactment of the GST law would be a smooth sailing."

Besides getting the bill passed in the RS, it also needs to be ratified by 50% of the states. Divyesh Lapsiwala, tax partner, EY, said the ratification from the states would come through easily as there were a large number of BJP-ruled states.

"Conceptually, the Bill has the approval of the empowered committee of finance ministers as there is broad consensus among them on it. So, getting 50% of the states to ratify it will not be a major issue. The biggest hurdle is getting it cleared in Rajya Sabha," he said.

A political analyst said it would be politically suicidal for the Congress to stall the bill in the RS as then the onus or the blame of blocking GST would be solely on it.

"BJP had put roadblocks through the empowered committee (of finance ministers). However, now that this committee has given its nod, the Congress would be solely responsible for obstructing the Bill. The Congress is cornered this time. I also believe the numbers could add up in BJP's favour with the support of TMC (Trinamool Congress) and BJD (Biju Janata Dal) in the RS," he said.

Lapsiwala said it had to be seen in what shape the bill has been passed as that would determine its effectiveness in propelling the economy and removing inefficiencies in the current indirect tax regime, which is fraught with multiplicity and repetitive levies.

He said it would be interesting to see what mechanism the government would use to check the cascading impact of the 1% additional tax on integrated goods and services tax (IGST). This additional tax has included in the GST for two years to appease the manufacturing states like Gujarat, Maharashtra, Tamil Nadu and others, and has been stiffly opposed by several law makers in the lower house. It will be assigned to states from where the supply of goods originates.

"What will be the change in it that will check its (additional tax) cascading impact as assured by the FM? Will it be creditable? What alternate mechanism will the government put in place for it?" said Lapsiwala.

He said if the government is able to take care of the issue then a big defect in the GST will be removed and the new tax regime would largely achieve the goal of boosting economic growth.

"If the issue of additional tax on IGST is taken care of then the GST structure would be reasonably positive in bringing capital investment efficiency, reducing multiplicity or cascading impact of indirect taxes and making supply chain decisions tax agnostic," he said.

According to him, some benefits of GST regime would kick in immediately. However, he said, it would take at least 2-3 years for real gains to come and would depend on how soon the government and trade and industry adapt to it.

Consumers are expected to benefit from efficient taxation of goods and services. And going by finance minister Arun Jaitley's assurance in the parliament on Wednesday that the revenue neutral rate (RNR) of GST would be lower than the 27% proposed by experts, consumers can also brace themselves for a lower indirect tax.

So, now that Constitution Amendment Bill has crossed the Lok Sabha barrier, how long before the first GST invoice is issued? Jaitley is looking at rolling out the GST by April 1, 2016.

Grant Thornton's Sarkar said the minister's deadline needs to be seen in two ways – first, whether it was for enactment of the GST law and second, if it means beginning the issuance of GST invoice.

"If it is the later (begin issuance of GST invoice) then it was an impossible target as it has been seen from experiences in other countries that it takes minimum one year for businesses to prepare for the regime. In that sense, it would not be before 2017 that the first GST will be issued. For enactment of the law, it is a realistic deadline, if everything goes off well in the RS," he said.

Santosh Dalvi, partner - indirect tax, KPMG, said the industry will also have to start preparing for the GST.

"Still, there is a lot of work which needs to be done in terms of preparation for the government such as appointment of a GST Council, draft legislation, GST IT infrastructure, overall change management, etc. Of course, for the industry it means a lot of internal preparation is required within 11 months of time," he said.

Chandrajit Banerjee, director general, CII, said passage of the bill in Lok Sabha was the first step in making India a single market.

"In terms of providing incentive to industry, this is the most extensive and far reaching reform in the tax domain, which would encourage industry to grow significantly," he said.

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