Developments in the Economic Survey 2014-15 and the Union Budget 2015-16
The big bang Budget has finally sealed and confirmed the advent of the much awaited Goods and Services Tax (GST) in India. Budget 2015 has paid heed to the demands of the industry by reiterating the government's commitment to implementing GST in India. The government has fruitfully discussed the GST Bill over the past year and taken into account the views of the States to ensure that the new GST regime begins on the intended implementation date. Paragraph 96 of the Union Budget speech has reinstated the 'Common Economic Market' vision of Article 301 of the Constitution, by weaving the whole of India into one indirect tax ambit. The reform which once looked like a distant dream seems more like a reality now.
Following our previous GST updates that discussed the 122nd Constitutional Amendment Bill (CAB), reactions of the States and industry to the CAB and the business challenges involved in the implementation of GST, this update highlights the important announcements regarding GST in the Economic Survey 2014-15 and the Union Budget 2015-16.
Economic Survey 2014-15
Union Budget 2015-16
- Economic Survey 2014-15 issued on 27 February 2015, indicates that the introduction of GST in 2016-17 has the potential to raise India's tax-GDP ratio from the current level of 17.5% to 20%;
- Further, it suggested that a single GST rate, across States and products, set at internationally competitive levels along with limited exemptions would maximise GST's pro-growth, pro-compliance, and pro-single market stand;
- Securing political consensus on GST will ensure a smooth legislative passage for the 122nd CAB.
The industry now eagerly awaits the announcement of a palpable implementation structure and short-term deadlines to achieve various check points like the legislative clearance of the 122nd CAB, formation of the draft GST Law and legislative clearance of the GST Act in the process of the implementation of GST.
- The Finance Minister, in his Budget speech, promised a game changing tax reform. This modernised indirect tax regime, that is GST, will bring greater transparency and investment in the economy;
- The government is taking various steps to implement GST from FY 2016-17, 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;
- Accordingly, the following intentions have been made vocal in the Budget speech:
- The Finance Minister has confirmed the introduction of GST from 1 April 2016. He also said that 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. The service tax rate has been increased from 12.36% to 14%.
- The Finance Minister has further pruned the list of excise and service tax exemptions which will help the transition to the proposed introduction of GST which is expected to be with minimum exemptions. This move was in-line with the Economic Survey 2014-15 observations to narrow the exemptions. Thus, it appears that under the GST regime, exemptions may be discouraged.
Along with the draft GST Law, both, organisations and consultants await with bated breath, to see how the Place of Supply Rules (POSR) will unfold. The POSR (which are already in the pipeline) should soon be released in the public domain so the industry can align itself to this transitional change. The early announcement of the POSR (which will ascertain the place of supply in a transaction), will certainly put to rest ambiguities like, whether there will be B2C and B2B differentiation, or if the POSR will replicate the Place of Provision of Services Rules, 2012 of service tax or follow international guidelines.
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 begin to realistically prepare for the GST regime.