GST : India's biggest tax reform since independence likely to sail through this Winter Session

The governments appears to be in a sweet spot over the passage of the GST Bill – a ''landmark'' legislation set to become the government's ''biggest reform since 1947."  The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and create a single market among the country's 1.2 billion people for the first time.

From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. With the implementation of GST, the Revenue Neutral Rate will be much lower than the present tax rates on goods. This will lead to lower tax burden for consumers, thereby facilitating a consumption-led growth.

GST would also make Indian products competitive in the domestic and international markets. Studies shows that implementation of GST would instantly spur economic growth and would  help the GDP rise anywhere between 1.5 to 2 %. According to a recent World Bank statement,the real impact of GST on the economy would be only visible by 2018.

Goods & Services Tax also aims to make the whole taxation system more simpler, transparent and auger a business friendly environment which can be administered with ease. The rolling out of the GST is going to have a huge positive impact for all the industry as it will subsume the multiplicity of taxes as well as the cascading of the taxes. Businesses will not have to deal with multiple tax authorities, but just approach the common portal of GST Network and pay up the taxes making compliance hassle free.

The idea of moving towards the GST was first mooted by the then Union Finance Minister Shri P. Chidambaram in his Budget for 2006-07. Initially, it was proposed that GST would be introduced by 1st April, 2010. Since then the bill has run into trouble first with the initial draft not being supported by all the states and subsequently no consensus being met by either the states or the Centre.After the new NDA government took over in May 2014, it made passage of GST Bill a priority, by having consultations with all the state government's and the stakeholders and arriving at a consensus in principle for the adoption of the Goods & Services Tax except for few minor issues relating to the bill. 

As the Bill was introduced in the Parliament, on the demands made by several political parties like Congress, AIADMK and BJD it was sent to the Standing Committee by the Upper House of the Parliament in the 2nd half of the Budget Session in May.

Later, in the Monsoon Session after the Standing Committees nod, the GST Bill was tabled in the Parliament and it did sail through the Lower House (Lok Sabha) where the government is in the majority. But the main obstruction came for the passage of the bill in the Upper House of the Parliament where the government and its alliance partners are in the minority. The session, which saw  relentless protests between the government and the opposition was a complete washout by the end of the monsoon session. The Center's most important reform bill, the Goods and Services Tax (GST) bill, remained in the Upper House without it being passed. The economic agenda of the NDA government suffered a severe setback after it failed to pass the important piece of legislations which also saw the markets reacting negatively and the investor community too felt disappointed by the governments inability to pass important economic reforms even after having a huge mandate to run the government.

An uneventful parliamentary session was negative for market sentiments, especially as the key reforms like GST framework had become a key barometers of the government's ability to implement its economic agenda.

Out of the total 245 member Upper House, to get the constitutional amendment bill passed, the coalition needs a two-thirds majority, or the support of at least 163 MPs, in the Rajya Sabha. BJP has only 48 members and total strength of NDA is 63 which constitutes a minority strength.

The political parties outside NDA that were supporting the bill are the Trinamool Congress (TMC), which has 12 MPs in the Rajya Sabha, the Biju Janata Dal (BJD), which has 6, the Bahujan Samaj Party(BSP), which has 10, the Janata Dal United (JDU), which has 12, the Nationalist Congress Party(NCP), which has 6 and the Samajwadi Party(SP), which has 15. The Left parties, with 10 members, were also ready to support the bill if the government agreed to few of their amendments.

But the bill could not sail through due to parliament logjam witnessed in the session along with the government's poor numbers in the House. NDA along with all the other parties supporting the bill could only reach the figure of 134 which was 29 votes less to reach the magic number of 163 for the legislation to pass through which made the support of Congress very important for the passage of the bill as they constitute a large number in the Upper House(Rajya Sabha). Parliament session was adjourned sine die, which opened the possibility of reconvening the session but later this too fizzled out as both the houses of Parliament was prorogue (end a session).

After the drubbing received by the NDA government in the recently concluded Bihar Assembly Elections it has given the opposition parties a new lease of life. This setback for the government would definitely have widespread repercussion that will extend beyond Bihar. The Indian Parliament is a bicameral legislature comprising the Lok Sabha and the Rajya Sabha. Currently, the BJP enjoys a majority in the Lok Sabha, but the party and its allies are in the minority in the Rajya Sabha. To pass crucial reforms, the BJP will need to gain seats in the Rajya Sabha, and to do that it will have to win state elections as Rajya Sabha members are nominated by state governments. As the third most populous state in India, Bihar is allocated a total of 16 seats in the Rajya Sabha. The Bihar defeat is likely to haunt the government as they will again fall short of the majority.

Noticing the changing scenario in the political arena and with the upcoming Winter session of the Parliament, the government is all set to get back on the agenda of development as it endeavours passage of all the important economic reforms. Progress on Goods & Services Tax looks a possibility as the government reaches out to opposition parties for the smooth and quick passage of GST Bill. The government is proactively reaching out to parties in the opposition on the much-delayed goods and services tax including looking at the possibility of incorporating some of the changes proposed by the Congress as it seeks to ensure passage of the Constitution amendment bill during the winter session of Parliament.

The Government is likely to heed to the demands made by the main opposition party Congress on several points raised without undercutting the core of the landmark legislation. The Government cannot go the full distance to appease Congress' concerns, but it is not averse to taking a few steps to enlist the support of the main opposition party which, with its huge numbers in Rajya Sabha, has been a big hurdle in the government's effort to muster two-thirds support needed in the upper House for the reforms legislation.

Of late there are indications that the government plans to scale up its outreach to Congress by taking up the matter with Congress chief Sonia Gandhi and vice president Rahul Gandhi. This was followed by the meeting of Finance Minister Mr. Arun Jaitley with the senior Congress leadership and AICC Vice -President Rahul Gandhi. The government has also reached out to non-Congress parties in the opposition - SP, Trinamool Congress, AIADMK and Telangana Rashtra Samiti  which are sympathetic to the need for early passage of the legislation. It is likely that JDU after its fresh victory in Bihar would lend it support to the bill as consumer states like Bihar are likely to be the biggest beneficiary of the GST Bill.

Recently, in a rare meeting with the industry and investor groups, Congress vice-president Rahul Gandhi apprised FIIs about the party's stand on stuck GST Bill. Rahul Gandhi assured the investors that his party was not against economic reforms and put the onus for the Bill's passage on the government as it wants the bill to be passed by discussing the issues raised by them.

These rush of consultations and dialogue between the government and opposition parties come after the government failed to get the opposition to back the bill to amend the Constitution during the budget as well as monsoon sessions, resulting in a race against time to roll out GST from 1st April 2016.

The chances of the biggest indirect tax reform kicking in from the next fiscal looks a possibility given the government's efforts to discuss contentious points with all the stakeholders and opposition parties.

Once the GST constitutional amendment bill is approved in the Rajya Sabha and receives the President’s nod, it will have to be ratified by 50% of the state legislative assemblies. After the bill is ratified, a GST council with the Union finance minister and finance ministers of all states will be constituted to take a final call on the design of GST, including the revenue threshold level beyond which the tax will be applicable and the tax rate under the indirect tax regime. These will be incorporated in the model GST laws that have to be passed by Parliament. The central government and the states have been working on these three laws the central GST law, the state GST law and the integrated GST law for governing inter-state sales.