The Big Picture – GST Bill: Why is it still not passed?
The first half of budget session of the Parliament has concluded. However, the much awaited legislation to usher in the Goods and Services Tax, which is expected to transform India’s tax structure, remains struck in the parliament. The bill hangs fire mainly because the government and the opposition are unable to work out a compromise on some contentious issues. The main issue is – what should be the rate of the GST and whether it’s possible to incorporate a cap on GST rate in the act itself. It may be recalled that finance minister last year had announced that the GST will be implemented from April 1 2016. That is now out of question. It is also true that the first half of the session was almost concentrated on Aadhar bill.
Opposition parties are demanding a cap on the GST and it should be incorporated in the Constitutional Amendment Bill itself. However, the government is not willing to include this clause in the amendment bill. According to the government, inclusion in the constitutional bill would make it more rigid and difficult for the government to change the rate as and when necessary. Moreover, worldwide, taxation issues are left for the government to work out. There is also an allegation that this bill, if passed, would give more powers to the Central Government with respect to taxation issues and would affect financial independence of states. This has also given rise to mistrust between the centre and States. And hence, states are demanding a constitutional protection in this regard. Opposition parties have also asked the government to do away with the 1% levy on inter-state GST and bring in place an Independent Dispute resolution mechanism.
Why there is an urgent need to pass this Bill?
- GST is crucial for India to reaffirm its reform intent to the world. If the government fails to deliver in this session, that would send a horribly wrong signal to the world on India’s prospects to advance on the reform front.
- Passage of this bill will also be seen as a big victory of this government by the investor community and the biggest reform India has witnessed in a decade. The GST will subsume several different taxes into one and will significantly improve the tax revenues over a period of time. Economists estimate up to 2% addition to the country’s GDP when GST improves tax revenues.
- Also, the extant tax structure of India is heavily fragmented, with multiple indirect taxes levied by different authorities at different stages of a transaction. This necessitates the urgent passage of this bill.
The GST bill, which subsumes all indirect taxes to create one rate and integrate the country into a single market, is the biggest tax reform that is being undertaken since Independence. If the government fails to build a consensus it will face even tougher days ahead. More critically, it will send a bad signal to the global investors about India’s reform course and thus future investment prospects. As global rating agency, Moody’s Investors Service warned recently, there are clear potential headwinds looming over India from a loss of reform momentum. So now it’s up to the government to get this Bill passed.