Terming passage of the 122nd Constitution Amendment Bill in the Lok Sabha as a step forward towards introduction of a national goods and services tax, experts and corporate lawyers said government and businesses have some heavy lifting to do in the coming months to meet the April 1, 2016 deadline.
Business associations and trade bodies termed this the first step in making India a single market. "In terms of providing incentive to industry, this is the most extensive and far reaching reform in the tax domain, which would encourage industry to grow significantly," noted Chandrajit Banerjee, Director General, CII.
"A unified common national market will bring in long-term benefits to all - government, industry, traders as well as consumers," said A Didar Singh, secretary general, Ficci. Assocham Secretary General D S Rawat said the passage of Bill would send a strong signal to the global investors. GST, which is proposed to be implemented from April 1, 2016, will subsume excise, service tax, state VAT, entry tax, octroi and other state levies.
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Even as it goes about meeting the next challenge, for passage of the Bill in the Upper House, where it does not have a majority, experts are of the opinion that the government has to simultaneously work on appointment of a GST Council, prepare the draft legislation, put in place the information technology infrastructure for GST Network, and have an overall change management programme for GST implementation.
"It will bring a lot of positivity around GST implementation in India. For industry, it means a lot of internal preparation is required within 11 months of time," said Santosh Dalvi, partner (indirect tax), KPMG in India.
Business players and tax experts welcomed the finance minister's acknowledgment in Parliament that the revenue neutral rate of 27 per cent was high and it should be reconsidered. Industry has been complaining that bringing in GST with a high tax rate could spur inflation.
"The statement that it is expected to be significantly diluted allays the fears of the industry and is welcome," noted Rajeev Dimri, leader, (indirect tax) at BMR & Associates. However, experts noted that no explanation has been provided on how the cascading effect of levy of additional tax would be minimised. The views of the proposed GST Council are likely to play a key role in this matter, added experts.
One thing all tax experts and industry players agree on is that the introduction of GST will change the way enterprises do business in the country. "The proposed GST will reduce the cost of compliance and litigation. Availability of seamless credit throughout the value chain will remove the cascading effect of taxes on cost of goods and services thereby making indigenous manufacture more attractive" said Nihal Kothari, executive director, Khaitan & Co.
P S Easwaran, senior director, Deloitte Touche Tohmatsu India, said the reform was not only about tax. "Companies need to look at this as a business issue and opportunities emerging from that."
According to experts, the supply chain planning becomes critical as organisations focus on reducing the cash flow impact from stock transfers. With a uniform GST across the country, companies need not operate out of tax-friendly locations. "GST is a good opportunity to re-define their supply chains covering manufacturing, sourcing, contracting and distribution," said Easwaran.
Given the nature of the GST structure, companies might adopt a hub-and-spoke structure, experts said. However, the April 2015 deadline leaves very less time for industry to prepare for this major transformation, said Pratik Jain, partner (indirect tax) at KPMG in India.