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Passage Of Tax Reform GST Bills: A New Start

The GST as a tax reform is no doubt seminal and to achieve the real potential of this reform it is imperative that the implementation is sensitive

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Four Bills related to GST got approved by the Lok Sabha today in the brisk fashion that has now become the trademark of this government. While we all will continue to scrutinise the fine print of the Bills and the amendments being proposed during their passage - what should be expected now?

The bills should surely be expected to be passed during this session. States will soon initiate the process of the passage of the State GST Acts and from a legislative process perspective a July 2017 roll out is a distinct possibility.

The GST regime is different from the existing tax regime in many ways – the compliances are more complex and mandate extreme transparency. Tax payers will not only quickly need to get organised and adapt to this new regime themselves as also mandate and possibly even manage the compliances of the stakeholders in their supply chain. Not being GST compliant will not only result in additional costs being incurred but also have a direct impact on revenue. While most will just try and get ready for the basic compliances by July, the next fervour of activity will be aimed at optimising the benefits of the tax reform. Businesses will commence re-engineering of supply chains and other programs enhancing efficiencies once the compliance hurdle is passed. We all should witness a lot of investments and consolidation in the logistics sector over the next few years.

GST has a clear bias towards the organised and compliant sector and material disincentive for dealing with non-compliant suppliers. This will be recognised and the number of people who will now be compulsorily driven to register and pay applicable taxes will see an exponential growth. The Chief Economic Advisor in his report with respect to Revenue Neutral Rate had indicated that the compliance levels in the economy is abysmal (only between 40-50 percent). With the increase in compliance levels as also a pruned exemption lists, the government revenues should see significant buoyancy in the short to medium term.

I have always said that the GST as a tax reform is no doubt seminal and to achieve the real potential of this reform it is imperative that the implementation is sensitive. The government and businesses acknowledge that a tax reform of this magnitude cannot be without glitches and it will be important for the government to engage with the trade and industry continuously and aggressively to remove the anomalies. A very mature and dynamic tax policy effort is essential.

The government has created some working committees right now to engage with the trade – but this framework is still skeletal. It needs beefing up and more importantly institutionalisation. The discussions need to be transparent and inclusive. The biggest concern of businesses is the ambiguity in law and the resultant uncertainty that could trigger litigation across the country. This concern needs to be quickly alleviated. This can be achieved by issuing clear guidance notes, clarifications or also issuing rules and prescribing clear and unambiguous procedures so as to ensure consistent administration and application of the law across the country. Circulation of draft rules and discussions with the industry on the same should be done as soon as possible. Removal or keeping in abeyance regulations that require massive compliance effort till the time stability of the regime sets in is also important.

GST is a great opportunity for the country to move to the new paradigm of growth and development. A cohesive and coherent effort is the need of the hour. These are no doubt exciting times ahead.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Uday Pimprikar

Uday Pimprikar is Partner, Indirect Tax Services, EY India. Uday has more than 15 years of experience in advising companies on various indirect tax legislations including Service Tax, Excise, Customs, Foreign Trade Policy and Value Added Tax across various industry sectors

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