GST council clears model tax law, but some hurdles remain

In a significant breakthrough that augurs well for the implementation of the goods and services tax (GST), both states and the centre cleared the model GST law on Thursday in the seventh GST council meeting chaired by finance minister Arun Jaitley.

All eyes will now be on the more contentious issue of cross-empowerment to scrutinize assesses to be taken up today.

A lack of consensus on the issue would make it impossible for the government to implement the ambitious indirect tax reform from its target date of 1 April 2017.

Today’s meeting will be crucial as the GST council would discuss the integrated GST Bill under which it will take up the matter regarding dual control of assessees, a government official said, requesting anonymity.

GST council, a siege and history

Later this week, the goods and services tax (GST) council will convene yet again to generate consensus on issues threatening to derail the deadline of 1 April for the roll-out of what is by any stretch the single-most important piece of tax reforms ever attempted—something that will, for the first time, economically unify the country and reinforce the new federal compact put in place by the 14th Finance Commission.

Understandable, given the council is a house divided at present. An ongoing stand-off has forced the apex decision-making body on the GST to stretch its deliberations, something which has derailed the legislative agenda and cast a shadow over the 1 April deadline because the enabling GST bills could not, as planned, be moved before Parliament in the just-concluded winter session.

And the way the council is structured, things can’t go forward without both the centre and states (or at least most of them) being in agreement. This is because the states together account for two-thirds of the votes and the balance is held by the centre; this structure favours consensus rather than a vote, which could split the council on political lines.

GST rollout may be pushed to July as industry needs time

With “turf issue” over tax payer jurisdiction continuing to clog GST council deliberations, the goods and services tax (GST) rollout could be delayed by a quarter to 1 July as industry would require time to prepare itself.

The council, chaired by finance minister Arun Jaitley, in its six meetings so far has taken unanimous decisions on 10 issues while three more—dual control, list of items in tax bracket and model CGST and IGST laws—are still pending.

PwC India executive director Sumit Lunker said the 1 April rollout deadline seems challenging, as the CGST and IGST laws can be passed only in the budget session in early February.

Tight timeline for GST rollout

With the goods and services tax (GST) council failing over the weekend to finalize the contours of the bills necessary to initiate the country’s single biggest tax reform in decades, the government is now on a tight timeline to roll out GST by 1 April 2017. The centre and the states still haven’t been able to agree on how to administer small taxpayers and the council is scheduled to meet again on 23 December. But by then, the winter session of Parliament will be over.

However, it is likely that the budget session will begin early next year and offer a window of opportunity to get the necessary bills passed.

Since it’s essential to implement the GST before September 2017, as indirect tax laws will become void after that, all stakeholders will do well to get the required legislative framework in place for its rollout in the beginning of the year.