SKP Group
SKP GST Update
| Issue 17
Rajya Sabha clears 122nd Constitutional Amendment Bill, 2014 on Goods and Services Tax

Today is a landmark moment for India as the Rajya Sabha (Upper House of the Parliament) passed the 122nd Constitutional Amendment Bill, 2014 (CAB), introducing Goods and Services Tax (GST). All members of the house voted in favour of the Bill. The passage of GST Bill in Rajya Sabha and the political consensus on the broad framework of GST will set the tone for implementation of GST.

There were several deliberations on crucial aspects of the bill such as, fixing the cap rate at 18% in the Bill, the Revenue Neutral Rate (RNR) at 15-15.5%, 18% or any other rate, the manner in which states would generate their revenue under the GST regime, resolution of disputes on matters which are not based on recommendations of the GST Council, whether there would be inflationary increase on the introduction of GST, the manner in which GST would be implemented, etc.

It would be important to note that the 122nd CAB, which passed through the Lok Sabha in May 2015 is amended further and accordingly the cabinet has suggested changes to the 122nd CAB to ensure that all parties are on board for passage of the bill. The key amendments proposed to the 122nd CAB are summarised below:
  • States’ share of Integrated Goods and Services Tax (IGST) would not form part of Consolidated Fund of India: This would mean that Central Goods and Services Tax (CGST) and the centre’s share of IGST would be available for distribution between the centre and states. Furthermore, it is proposed that the term IGST would be replaced with ‘goods and services tax levied on supplies in the course of inter-state trade or commerce’.
  • GST Council shall establish a mechanism to adjudicate any dispute arising out of its recommendations between the centre and one or more states/between two states: It is stated that the GST council would establish a mechanism to resolve disputes arising out of its recommendations, which is expected to provide necessary comfort to the states as the dispute could arise at the time of sharing revenue in case a particular state has suffered a loss of revenue under GST.
  • Controversial 1% additional tax on inter-state supply of goods is withdrawn: This was one of the demands from the opposition and from businesses, withdrawing the additional tax would not increase the tax cost in the supply chain; as 1% additional tax was expected to be non-creditable.
  • Compensation to states for any loss of revenues shall be provided for five years: States had urged that the compensation should be provided in full, for five years. Amendment has been made to the relevant Article of the Constitution to replace the word ‘may’ with ‘shall’ to clarify the intention of the government to provide compensation for five years.
SKP's comments
The amendments proposed to 122nd CAB, would have to be sent to the Lok Sabha for approval and once it is approved it must be ratified by more than 50% of the states in their respective state assemblies. It is expected that a special session of all state assemblies could be held for the smooth passage of the Bill. Once approved, the Bill requires the assent of the President and the GST Council would be formed to provide recommendations on key aspects of GST.
The Goods and Service Tax portal (GSTN) is expected to be tested in October 2016 and subsequently launched in February 2017. Furthermore, the government is ready with the draft GST law and the rules; making it the most appropriate time for the businesses to prepare/finalise the following:
  • Conduct GST Impact analysis
  • Form GST steering committee to have a control on GST impact and implementation process across business functions
  • File representations with the government to seek clarity/amend provisions
  • Realign business models to suit the GST regime
  • Develop SOPs and training modules for training employees/vendors
  • Ascertain the impact of GST on long-term contracts
  • Ascertain whether IT Systems require an upgrade and undertake one if required
  • Prepare a plan for effective transition
The passage of the Bill by Lok Sabha and ratification by 50% of the states could be expected by November/December 2016 and the GST council could be formed by December 2016/January 2017 to provide recommendations on the key aspects of GST. After this, CGST and IGST Bills could be passed by the Lok Sabha and Rajya Sabha and thereafter, draft GST Laws and Rules could be expected. The transition can be expected to start from February 2017 onwards, once the GSTN is ready. As the Rajya Sabha has witnessed willingness of all political parties to introduce GST (as it is expected to increase GDP by 2% along with several other benefits), implementation during the first half of the 2017-18 fiscal year seems realistic.
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