MARCH 27, 2015

By Pratik Shah, CA & Jigar Doshi, CA

THE Big Bang Budget has finally sealed and confirmed the advent of the much awaited Goods and Services Tax (GST) in India. The Budget 2015 has paid heed to the industry demand by reiterating Governments' commitment of implementing GST in India. The Government has fruitfully discussed the GST Bill over the past year and moderated views of several states to ensure that the new GST regime meets the target of implementation date. Para 96 of the Union Budget Speech has reinstated the ‘Common Economic Market' vision of Article 301 of the Constitution by weaving whole of India into one Indirect Tax Ambit.  The reform which once looked like a distant dream seems more like a reality now.

During the course of this article, we highlight the important announcements regarding GST in Economic Survey 2014-15, the Union Budget 2015-16 and the prospective way forward.

ECONOMIC SURVEY 2014-15

1.  Economic Survey 2014-15 issued on 27 February 2015 indicates that introduction of the GST in 2016-17 has the potential to raise India's Tax-GDP ratio from the current level of 17.5% to 20% ;

2.  Further, it suggested that a single GST rate (across States and products) set at internationally competitive levels along with limited exemptions would maximize GST's pro-growth, pro-compliance, and pro-single market stand;

3.  Economic Survey 2014-15 emphasizes on leveraging technology. Thus, in coming months, the industry can expect the GSTN (GST portal) to go live soon for public comments / suggestions.

UNION BUDGET 2015-16

1. In the Budget speech, the Finance Minister promised a game changing tax reform. This modernized Indirect Tax regime i.e. GST will bring greater transparency and investment in the economy;

2. The Government is taking various steps to implement GST from FY 2016, which will add tax buoyancy to our economy by developing a common Indian market and reducing the cascading effect of taxes on the cost of goods and services;

3. Accordingly, the following intentions have been made vocal in the Budget speech:

•  The Finance Minister has reiterated to introduce GST by 1 April 2016 and said it will put in place a state-of-the-art Indirect Tax System;

•  As a precursor to GST, it is proposed to subsume Education Cess (EC) and Secondary and Higher Education Cess and Service Tax rate has been increased from 12.36% to 14%;

4. Finance Minister (FM) has further pruned the list of Excise and Service Tax exemptions which will help transition to proposed introduction of GST which is expected to be ‘exemption-free'. This move was in-line with the Economic Survey 2014-15 observations to narrow the exemptions. Thus, it appears that the GST will nearly be an ‘exemption-free' regime;

5. Aligning with FM's vision of curbing Black Money, the GST regime may entail the industry to gear up for more transaction reporting and accordingly prepare their systems to capture the relevant data for onward reporting;

6. However, going forward, it will be crucial to moderate a political consensus on GST, in turn allowing a smooth legislative passage for 122 nd Constitutional Amendment Bill (CAB).

Much to the expectation of the industry, the GST roll out on 1 April 2016 has been reiterated in the Budget, but the real challenge of implementing GST still looms ahead. The industry eagerly awaits the announcement of a palpable implementation structure and short term deadlines to achieve various check points like legislative clearance of 122 nd CAB, formation of draft GST Law, Legislative clearance of GST Act, etc. in the process of GST implementation.

Along with the Draft GST Law, both organizations and the consultancy world wait with bated breath as to how the Place of Supply Rules (POSR) will unfold. The POSR (which are already in the pipeline) should be soon released in the public domain so that the industry can align themselves to this transitional change. The early announcement of the POSR (which will ascertain place of supply in a transaction), will certainly put to rest the ambiguity in many questions like, Will there be B2C and B2B differentiation? Will GST grandfather the POPSR, 2012 of Service Tax or follow International guidelines? and also help in strategic decision making.

Recently, on 20 March 2015, Union Finance Minister Mr Arun Jaitley met State Finance Ministers and after the meeting, Mr Jaitley said the name of the new chairman on the GST panel will be announced in the next few days after wider consultations and Centre will go ahead with the Constitutional Amendment bill to pave the way for the indirect taxes regime. He also stated that he hopes that the Constitution Amendment bill, which was cleared by the standing committee, will be considered by Parliament in the second part of the budget session.

Pursuant to the above meeting, on 25 March 2015, it was announced that Kerala Finance Minister Mr  KM Mani has been appointed chairman of the empowered committee of State Finance Ministers on GST.  The chairman of the committee has generally been from an opposition ruled State. Mr Mani represents the Kerala Congress (M) and is also a senior Finance Minister. His appointment is expected to help the government to obtain support from the opposition when Parliament takes up the Constitution amendment bill for GST in the second part of the budget session.

The Budget measures and recent discussions undoubtedly assert that GST will more likely than not be introduced by 1 April 2016.

Thus, as the well-known writer William Arthur Ward quotes “ The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails ” it is imperative for the industry to start adjusting their sails and realistically prepare for the GST regime.