Bhavesh Birla 1511016

Can GST be implemented by April 2017?

GST (Goods and Services Tax) is consumption tax levied on sale, manufacture and consumption
of goods and services at national level. Substituting indirect taxes at both center and state level,
GST will comprise of CGST (center tax), SGST (state tax) and IGST (levied by central
government on interstate supply of goods and services)(exhibit 1). Passed in August 2016, bill is
expected to be rolled out by April 2017 and it has to pass following stages

Figure 1: GST implementation steps ahead6

1.Ratification of GST bill and Presidential Assent As of September 1, 2016 Government has
achieved ratification in less than planned 30 days1, assent on 8th September.
2. Forming of GST Council, cabinet and state approvals GST council, chaired by Union and
state finance ministers, will be responsible for deciding threshold Revenue neutral rate (RNR),
indirect taxes to be subsumed, exemption threshold, dispute resolution mechanism and goods,
services to be exempted.
Deciding common RNR will be difficult for GST council because in 2011-12, revenue from
VAT as ratio of GSDP varied from 2.9% in West Bengal to 6% in Kerala despite broadly uniform
nominal VAT rates2.
Regarding indirect taxes, main contention relates to inclusion of purchase taxes on food grain,
taxes on motor spirit and high-speed diesel2. Food grain rich states have been levying purchase
taxes. As states derive ~35% of their sales tax collections from motor spirit and high speed
diesel, they are reluctant to bring them under GST ambit.

Regarding proposed exemption turnover of INR 10 lakh, businesses have been pushing for
increasing this to INR 25 lakhs, as it will impact low income SMEs3.
Due to these challenges, it will be difficult for GST council to bring a convergence among states
for policy framing. The next hurdle would be passing these laws in parliament where opposition
parties are still debating over GST rate and exempted sectors.
3. Along with administrative issues, there are implementation issues. GST network formed to
provide shared IT infrastructure for GST will have to build robust system for processing
registration/returns, audits, etc. Due to dual nature of GST, other countries IT implementation of
GST cannot be copied directly.
Government officers need to be trained for GST law. Lesser time for learning complex GST law
might lead to ignorance of details leading to detrimental results because these people will handle
GST at ground level.
Below measures can be taken to tackle this
1. Establish GST task force
2. Prepare Regional GST literature
3. Business Community Representative in GST council
4. Improve financial and computer literacy regarding GST among business community through
workshops
Summary of challenges RNR calculation, consensus over exemptions, thresholds and
compounding, GST IT deployment, dispute resolve mechanism training of officers and
cross empowerment to mitigate ill effects of dual control4
Given the challenges, we now look at outcomes of GST in various countries5,7
1. Malaysia SME businessmen and tax officials in Malaysia resented new GST system due to
uncertainty and ineffective implementation through street protests, in spite of giving 1.5 years
for GST preparedness.

2. Singapore GST gave rise to temporary spike in inflation in Singapore. Hence, some
measures were taken to counteract it. Due to uncertainty over GST rate, Singapore Government
had to change rates after first draft.
3. Canada Despite opposition parties resentment, Canada adopted 3 different models,
independent center and state based taxes.
Thus, we see that hastily bringing in GST law without underlying infrastructure and business
community getting ready for same would be disastrous. Hence, instead of deadline of April 1,
2017, government should focus on making underlying ecosystem more robust and then bring
GST.
References
1. http://www.tribuneindia.com/news/business/16-states-ratify-gst-bill-ready-for-preznod/288776.html

2. http://www.livemint.com/Opinion/FtsFwtT50bMOc9HjHlJOLJ/GST-in-India-Challenges-andprospects.html
3. http://www.firstpost.com/business/here-are-a-few-hurdles-to-be-cleared-for-smooth-rollout-ofgst-2840102.html
4. http://www.pradhanmantriyojana.in/gst-bill-explained-what-is-it-benefits-pdf-latest-news/
5. http://www.gatewayhouse.in/key-gst-lessons-from-the-world/
6. http://www.businesstoday.in/current/economy-politics/9-steps-to-turn-gst-bill-intolaw/story/235782.html
7. http://www.financialexpress.com/economy/gst-lessons-from-countries-that-have-implementedthe-goods-and-services-tax/331289/

Exhibits
1. GST working example4

2. GST Tax Rates in different countries

Figure 2: GST rates, Source7