Armed with a clear majority in the Lok Sabha, the BJP led NDA government seems to be all set to embark on a massive reforms path.
The first task the new government has set for itself is simplifying the complex tax structure. No less important is the need to bring in a combined goods and service tax. The GST is expected to subsume most of indirect taxes like the central excise, central sales tax, VAT in states, service tax, local entry taxes and Octroi.
That the government is keen to push forward this biggest indirect tax reform since independence is quite evident from the fact that it was mentioned in the first address of President to both houses of parliament. And given its numbers in parliament, the Narendra Modi government feels it’s better placed than the previous UPA government to do so.
The previous UPA government was defeated in its attempts to implement the GST, partly due to a lack of political consensus and largely due to the fact that opposition ruled states cannot be convinced. This time around the situation is different, as the Congress ruled states like Kerala want it to be implemented.
Finance minister of Kerala, KM Mani who visited Delhi to attend a pre-budget meeting with union finance minister Arun Jaitley, told Rajya Sabha TV: “It is regrettable that GST has not been brought into force. Had it been brought into force we’d have got better revenue. I requested the union finance minister to take early steps to introduce GST.”
However, it is not easy to implement GST as it requires constitutional amendment with the support of two third of members present and voting in either house of parliament and its subsequent ratification by not less than half the states. The issue of compensation to states in case of loss of revenue while implementing GST remains the biggest impediment.
“Regarding the GST, certain states have certain reservations that have to be sorted with immediately and the GST has to be brought in as early as possible so that the states will be able to secure better income”, KM Mani said.
Several stakeholders, that have met finance minister for pre-budget meetings have also demanded early implementation of the GST.
President of industry body Ficci Siddharth Birla told Rajya Sabha TV: “We want GST to subsume all the local taxes. No sector should be left out of it.”
Siddharth Birla said petroleum sector should also be covered in the proposed GST. Previous UPA government had kept petroleum sector out of the GST bill (The Constitution- One Hundred and Fifteenth Amendment- Bill, 2011). The bill was introduced in the Lok Sabha during March 2011.
GST is expected to usher India into a simplified and transparent tax regime that will convert India into a single market for goods and services. Implementation of GST will bring transparency in tax administration and reduce the cost of compliance and instances of tax evasion.
As per some estimates, its successful implementation may increase India’s GDP by 1 to 2 per cent. But it will require active support of opposition parties as Narendra Modi led NDA government does not have majority in the Rajya Sabha to push through the constitutional amendment bill.