After several hiccups, India now appears all set to meet the July 1 deadline to roll out Goods and Services Tax (GST), the biggest reform in the indirect taxation system to facilitate seamless movement of goods across the states. The decks have been cleared for implementation of a single, comprehensive tax regime after GST Council on Saturday approved two crucial bills- the Central GST and the Integrated GST- which will now go to the Parliament for clearance in the second half of Budget session beginning next week. On their part, state assemblies need to pass the respective State GST laws. The road to GST had its share of political hurdles and disagreements between the Centre and states but it is finally coming to fruition. The success of GST is a testimony to the inherent resilience and robustness of India’s federal structure and its ability to implement a complex reforms process involving diverse interests. Apart from reducing complexity of taxes by subsuming all other indirect taxes like service tax, octroi, central sales tax, state sales tax, entry tax, license fees and turnover tax, the GST will lead to reduction in transaction costs of businesses, plugging leakage of tax, lowering tax burden on common man, improving ease of doing business and boosting consumption. It is also expected to boost GDP growth by two percent. It is heartening that all states have now come on board to cooperate in the rollout.
While GST seeks to dismantle inter-state barriers to trade in goods and services, there are genuine apprehensions among some states over revenue loss following its implementation. The Centre needs to address these concerns in a fair and impartial manner. Telangana, the country’s newest state, will incur revenue loss on account of GST but has wholeheartedly supported the taxation reform in the larger interests of the country. The revenue losses due to GST, coupled with the negative impact of demonetisation, could be a double whammy for many states. Some experts opine that it would be difficult for Indian economy to absorb the impact of two back-to-back disruptive policy moves. A tactful approach is needed to harmonise the interests of the states before rolling out the uniform taxation system. There must be a constitutional guarantee and a clear-cut roadmap on the mode of payment towards compensation for the revenue loss that the states will incur due to GST. For Telangana, which had to bear revenue losses due to demonetisation, the revenues through VAT could be affected to the tune of at least Rs 15,000 crore following introduction of GST. Infrastructural preparedness, coordination between the Centre and States and a fair mechanism for dispute redressal are among the challenges facing the new tax reform.