SKP Group
SKP GST Update
27 January 2015 | Issue 2
Reactions of the States and industry to CAB
The Winter Session of the Indian Parliament 2014 witnessed the introduction of the 122nd Constitutional Amendment Bill (CAB). The introduction of the CAB which proposes the Goods and Services Tax (GST) is the single biggest indirect tax reform in India post-independence.

122nd CAB likely to be discussed in the Budget Session
The 122nd CAB, which was tabled in the Lok Sabha (Lower House of Parliament), proposes a wide range of changes in the structure of indirect tax in India.

The Union Finance Minister, Mr Arun Jaitley, stated, "We will formally take it (GST) up in the next session". Thus, it appears that the CAB will be discussed in the upcoming Budget Session which will begin from 23 February 2015.

GST will make India 'one common market'
This notable reform though in its nascent stage, has received appreciation from leaders across the world. During the recently concluded Vibrant Gujarat Summit, World Bank President, Jim Yong Kim applauded the Government's drive to implement GST in India and said it would create "one common market and substantial saving for companies on logistics, especially if the structure of the GST is uniform".

Union and States debate over GST
It is apparent that the CAB is being actively discussed across all information circles, be it our day-to-day twitter to the global summits. The Centre and States have been under constant deliberations to reach a consensus on various issues and ensure a smooth transition into the GST regime.

Concerns of the States
Even though some of the States have their reservations regarding GST, none deny the economic benefits that will be derived from its implementation. States like Gujarat, Tamil Nadu, Kerala, Chhattisgarh and others have their reservations. Some of which are mentioned below:
  • Gujarat has demanded that 1% additional tax (over and above GST) should continue until advised to the contrary by the States (instead of the timeline of two years as proposed in the 122nd CAB).
  • Tamil Nadu has opposed the introduction of the GST Bill without evolving a consensus on critical aspects like revenue neutral rates and bands, compensation methodology and thresholds.
As Chhattisgarh Chief Minister, Mr Raman Singh rightly said, "Almost all states have given their in-principle approval to GST. We are no different. We do not have any problem with GST. We want that, the government give us money on account of Central Sales Tax (CST) loss this financial year."

Thus, it may be inferred that the aforesaid reservations of the States may not be a road block to the GST Bill, but rather terms of negotiation put forth by States to enter the GST regime.

Centre's deliberations
The Centre appears to be flexible about ensuring that the demands of every state are looked after. Mr Arun Jaitley has repeatedly assured that the demands of the States will be met and the implementation of GST may be expected by 1 April 2016.

India Inc's reaction to the CAB
The industry's reaction to GST seems extremely bullish. This could be due to the report from the National Council of Applied Economic Research, which said that the GST's rollout would, ceteris paribus, "provide gains in India's GDP somewhere within a range of 0.9 to 1.7 percent.".  It appears that India Inc. is positive about:
  • Less cascading of taxes
  • Reduced production cost
  • Single unified taxation system
  • Less hassle of compliance
Business organisations, after having weighed every aspect of the proposed GST Bill, are bullish. However they do express the following concerns:
  •  A steep rate of GST (approx. 27% by few news reports) may lead to disastrous results, negating every positive implication that GST could offer
  • Inappropriate implementation of GST will lead to further confusion among organisations
  • Phased implementation of GST also remains under a dark cloud, with a looming question, how will the credit allocation be made in such circumstances?
  • If less time is given to the industry for implementation of GST, it could lead to chaos
Since the introduction of the 122nd CAB in the Winter Session of Parliament there have been much active discussions on the Bill, it will be interesting to see, how this Bill will be discussed in the Budget Session 2015. The industry is keenly watching how the Centre will deal with the issues arising from implementation and expectations of the business organisations while parallely addressing the needs of the States on GST.
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