Diluted GST bill all set to be passed in Indian parliament

New Delhi,Praveena Sharma: It’s a Bill the previous government pushed hard in the Parliament without much success, but could well see the light of the day under the Modi-led National Democratic Alliance (NDA) government, albeit in a diluted form.With Congress support, the NDA government will be able to push the Constitution Amendment Bill for GST in Lok Sabha today; experts say the structure may be flawed due to compromises made by govt.

On Tuesday, the lower house discussed the Constitution Amendment Bill for the enactment of the goods and services tax (GST) Act amidst stiff opposition and demand for it to be referred back to the Standing Committee for a deliberation on changes made to it after the lapse of its 2011 version.

And even as the avalanche of criticism from AIDMK, BJD, TRS, CPI(M), YSRCP and others threatened to derail it, the support assured by opposition Congress could see the Bill, which will bring about a unified indirect tax regime across states, go through today when it comes up for voting.

However, the GST structure that will emerge may not be the perfect one. Tax experts say it may be flawed due to the compromises the government has been forced to make.

Uday Pimprikar, tax partner, EY, said India may have to begin with a less than perfect GST because of its federal government structure.

“GST by itself is a good tax reform. It is meant to remove the cascading impact of imposition of multiple indirect levies but because of the federal structure, many compromises have been forced (upon the government) that has diluted a flawless GST,” he said.

Pimprikar said these compromises have been made in the basic interest of getting the Bill in place. However, according to him they were material compromises and would adversely impact the economic gains expected from GST.

“Both the state and central government should yearn to enact a flawless GST. In the absence of a flawless GST, its intended benefit to the economy would not accrue or would be materially lower than expected,” he said.

Finance minister Arun Jaitley, who begged the Parliament on Tuesday to back the Bill without discrimination, has said GST would add 1-2% to the GDP. The NDA government wants to roll out GST by April, 2016. The minister said if the Bill was taken back to the parliament committee, it would delay it by another one year.

Most see the 1% origin tax, which would be levied for two years on goods stock moving from one state to another, as defeating the purpose of GST. It was opposed by most parties in the parliament on Tuesday as they felt it could have an inflationary impact on the final product. There are also concerns relating to compensation mechanism for state, exclusion of products and sectors, bigger veto power to the Centre, revenue neutral rate (RNR) and other issues.

Pimprikar pointed to another defect in the GST of the absence of industry engagement in its formulation. He said the government should look at developing an institutional mechanism for involving the industry in the process of decision making on important issues relating to the GST.

“It is imperative that both the government and industry should work on a flawless GST structure. Right now, there is no institutional mechanism available for the government to engage the industry to make decision in the GST designing or formulating it,” he said.

The current form of GST has been primarily developed by states or can be said to be a product of unilateral activity of a few functionaries.

Amit Kumar Sarkar, partner, Grant Thornton India LLP, said the rumblings in the parliament were nothing but finger pointing and the many anomalies being highlighted by the opposition could be discussed after the Constitution Amendment Bill for enacting the GST is passed in the both houses.

“Discussions can happen later, first let the change in the Constitution happen,” he said.

Political analysts said once the Bill gets through the lower house with the support of Congress, it will not be difficult for it to be cleared in the upper house.

“If the Congress is supporting it in the Lok Sabha, they will have to back the Bill in the Rajya Sabha also. Otherwise, it will be embarrassing for them to explain their irrational behaviour,” said a political observer, who did not want to be named.

The Lok Sabha session will end on Friday while the Rajya Sabha session will continue till May 18.

Posted by on May 6, 2015. Filed under Nation. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.