I. Undoubtedly the passing of the GST Constitutional Amendment
Bill by Rajya Sabha is a landmark in the annals of India's
fiscal reform after independence. It is bigger than the tax reform
by Raja Chelliah and Manmohan Singh, and the introduction of VAT in
2004. The Goods and Services tax unifies the Indian market for
goods and services into a single market with a common tax code and
hopefully a single rate (18 % RNR) on a pan India basis. It removes
the barriers to the movement of goods and services within
II. The tax system and administration will also be based on a
superior tax design and uniform threshold limits for covering the
maximum units of tax payers in the system to expand the tax base to
support lower and moderate tax than an extortionate tax system.
Hopefully India will hold fast to a moderate tax regime to curb the
inflationary impact of a higher GST rate. To make the Indian export
in the global market competitive this is a must. This has been a
selling point for the GST reform which can be a game changer only
if it makes our export internationally competitive.
III. Services which constitute over 50 % of the GDP are bound to
become more expensive with a higher rate of GST and this is a
forbidding thought for consumers of services both at an industry
and individual level. The actual impact is difficult to express at
IV. On the contra side, a poorly administered GST with the
state-machinery working at cross- purposes would defeat the purpose
of a single code and single rate and uniform interpretation. The
dual system of GST which means a two tier Central and State
assessments and collection and initiation of audits and refund
processes, is fraught with the risk of local distortion in
individual States and the tax payer may yet suffer from an
inefficient, untrained and corrupt tax administrators. The pain of
transition to a new system has been felt in Malaysia which also
adopted GST recently, and the Indian experience may be hit by our
own unique set of problems.
V. The GST operates through an IT Infrastructure which is likely
to be implemented and go through trial runs only after the
legislations have been finally passed by the States. This is a
critical component and how quickly the tax paying companies and
other entities doing business can mesh their own systems into GSTN
is a question of adopting new systems all across the country. One
can only be optimistic and hope for the best at least in the short
to medium term.
VI. Finally, the entire ecosystem in the manufacturing and
service supply chain has also to fit into the requirements of GST
and how quickly this is done by all the stakeholders will be a
challenge that should not be underestimated for the smooth
transition and implementation of the GST.
VII. It is best to avoid euphoria and to prepare for a checklist
of what can go wrong so that all the players, and above all the
Central and State governments, are willing and ready to intervene
when bottlenecks and hurdles are encountered. This is a huge
experiment on a huge scale and tax administration must be prepared
to assist tax payers without the old suspicions of the past and in
a genuine spirit of understanding. Remember, implementation is the
key as industry and business would need a period of trial and error
to adapt their systems and unless approached in the right sprit,
businesses may suffer.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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