Definitive GST roadmap likely in Modi government’s first budget

By Gyanendra Kumar Keshri,

New Delhi : A definitive roadmap for implementing the much-delayed indirect tax reform, the Goods and Services Tax (GST), is likely to be announced in the maiden budget of Prime Minister Narendra Modi’s government to be presented July 10.

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Various stakeholders and analysts IANS spoke to expressed hope that Finance Minister Arun Jaitley would lay down the timeframe and a roadmap for implementing the GST, which will have a far-reaching impact on industrial growth, investments and the government’s revenue.

“We are hopeful that there will be a roadmap for the GST in the upcoming budget,” Girish Vanvari, KPMG India’s co-head of tax, told IANS.

Vanvari said a definitive roadmap on GST will set the tone of reforms under the new government.

“All the parameters are negative. The only positive is the government. We are expecting a roadmap on some structural reforms,” Vanvari said, alluding to the difficult macro-economic situation prevailing in the country.

The country is passing through its worst economic growth slowdown since 1980s, inflation has remained stubbornly high and the fiscal situation fragile.

High expectations surround the maiden budget of the Modi government, which came to power after registering a historic victory in the April-May general election. People expect the budget to support growth, be anti-inflationary and committed to fiscal consolidation.

“I am expecting that the finance minister will announce some time frame for the implementation of GST,” Automotive Component Manufacturers Association of India (ACMA) president Harish Lakshman told IANS.

Lakshman said immediate implementation of the GST is not possible because outstanding issues between the centre and the states remain unresolved. But the silver lining is that the BJP-ruled states like Gujarat and Madhya Pradesh that had led the opposition to the GST in the past are now on board.

“Several non-BJP and non-Congress ruled states like Tamil Nadu are also opposing the GST, so the challenges remain,” Lakshman told IANS.

One of India’s most comprehensive economic reforms, GST seeks to create a uniform indirect tax structure across the country by merging all central and state taxes. It has been lingering for more than a decade.

The central government under then prime minister Atal Bihari Vajpayee started discussions on the reform and set up an empowered committee in 2000. Successive governments reiterated their commitment to tax reform and set several deadlines for its introduction. But it never came about.

In the budget for 2007-08, then finance minister P. Chidambaram had set a target of April 1, 2010, for GST’s implementation. Several other deadlines were set, but the Congress-led UPA government failed to reach a consensus on the issue.

Taking major parties and state governments into confidence is crucial for implementing the GST as the proposed legislation needs to be passed by a two-third’s majority in both houses of parliament and ratified by more than half of the state assemblies.

Some analysts say the Modi government may opt for implementing the reform in phases.

According to CRISIL, the government may go for partial implementation of GST in early 2015. Initially petroleum products, a major source of state revenues, are likely to be kept out of GST’s purview.

Full implementation of GST could lift India’s gross domestic product (GDP) growth by 0.9-1.7 percentage points, according to a study by the National Council of Applied Economic Research (NCAER).

By eliminating the cascading effect of multiple central and state taxes, GST is expected to reduce taxation and filing costs and boost business profitability – in turn attracting investments and lifting GDP growth. Lower costs will also boost the price competitiveness of India’s manufacturing exports and lift the growth of exports.

Simplification of tax norms can significantly improve tax compliance and increase tax revenues.

(Gyanendra Kumar Keshri can be reached at [email protected])