GST Bill – Tough Road Ahead

The GST Bill has finally been passed in the Rajya Sabha and that makes it as close to implementation as possible. With the broad legislative approval in place, there are a few key challenges for the government. It has set an internal target of launching GST effective April 2017. There are 4 key issues the government needs to address…

Managing disgruntled states…

For most states, the issue is not just about the loss of revenue but also about the loss of taxing powers. This problem gets compounded for manufacturing states like Tamil Nadu where the revenue losses could be substantial. The government needs to remember that the success of GST depends on getting the buy-in of all the states. Even a single disgruntled state can become a major bottleneck for the all-India implementation of GST. This is the primary issue for the government to focus on immediately.

Putting the GST Council in place…

 The next challenge will be putting the GST Council in place. It will be the pivotal body that will give critical inputs on the rate of GST, revenue neutral rate and the settlement of disputes. There will be political and economic considerations in the formation of the GST Council as it will need to be represented adequately by the centre and the states. That is where contrarian interest pockets will come into conflict with one another.

Setting the RNR and GST Rates…

This is likely to be a lot more complicated that what it prima facie appears to be. There is a trade-off between revenues and greater tax coverage. There is a trade-off between the interest of the Indian economy overall and the interests of individual states. There is also a trade-off between merit goods and demerit goods. The first challenge is to set the appropriate level of GST-RNR. The second challenge is to define merit and demerit goods and decide the appropriate spread deviation from the RNR. This has to be achieved in the next quarter if the GST has to be implemented in April 2017.

Getting corporate buy-in…

While most of the Indian CEOs seem to be positive on the macroeconomic benefits of GST, there are a plethora of micro issues. The final GST rate may not be to the liking of all business lobbies. Many businesses may not be fully equipped to undertake the massive systems and legal shift to adhere to the GST deadline. There may be buy-in at the top management level but more critical will be the buy-in at the operational levels of Indian business. The government will have its hands full. GST Bill may be a reality. The real challenge begins now!

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