Is Government Taking Step Closure to GST

With the GST implementation deadline of April 2016 becoming a non-event, questions are up once again on the fate of the Goods and Services Tax. In this year’s budget speech in the Parliament, there was not much ado on the GST. This was in stark contrast to the last year’s budget session when there was a firmness to move towards GST regime within a year. Is it that the government is resigned to the fact that they do not have a majority in the Upper house and till they get it, the GST bill cannot be passed?

No, the government does not seem to be sitting idle on the GST issue. A recent statement from the finance minister that he is in agreement that the highest rate of GST should not go beyond 18% had raised hopes that the bill may be passed in the budget session. However, the Congress party demand for a cap of 18% in the constitutional amendment bill was not heeded to. With the second part of the Parliament session beginning from the 25^th of April there is hope once again that the government is likely to push through the tax reform.

Another noticeable action that reiterates the government’s resolve to go ahead with the GST is the focus on the administrative reforms on the tax front. The items that had been enjoying exemptions are being brought under the tax regime. This includes the jewellery items with the exception of silver jewellery and the branded apparel & clothing accessories with a retail sale price of INR 1000 and above. The reaction from the jewellers was an agitation where they said they were not willing for a 1% and 12.5% excise duty rates. The government is firm on its stand to bring this sector under taxation.

The concessional notification on the apparel and clothing accessories have been withdrawn and excise duty is proposed. It is very clear that the excise duty will be subsumed under the GST. The tax changes at this time are an indicator that irrespective of the passage of the GST bill in the parliamentary session, the government is busy with the groundwork for the reform. It is doing away with the concessions and getting more and more sectors under the tax ambit. It is now very clear to them that higher the number of concessions, more will be the Revenue Neutral Rate (RNR) of the GST.

Over the years, the Service Tax rate has also gone up. The government has upped the rate to 14.5% in the budget this year and a krishi Kalyan cess of 0.5% from June 2016 will take it up to 15%. This move is also an indicator that the government is bringing the service tax rate closer to the RNR rate of 17 to 18% in the GST  This will avoid a steep hike for the service tax rate when the GST is finally implemented.

The indicators from the government are firm and clear that it is going ahead with its GST reform process. They are utilizing the time delays to set the tax administration in order. The industry, trade and dealerships would do well to iron out their tax issues and gear up their infrastructure and resources for the biggest tax reform of the times, in India.