As India took a big step forward towards ushering in its most significant reform initiative since 1991, members of India Inc hailed the clearance of the GST Statute Bill by the Rajya Sabha, as a ‘historic’ move.
The Parliament's Upper House approved The Constitution (122nd Amendment) Bill, 2014 with 203 votes in favour and none against. The Goods and Services Tax (GST) regime, which is expected to be implemented from April 1, 2017, aims to replace multiple state and central levies with a single tax.
Since the central and state taxes are likely to be subsumed under GST, it may result in fungibility of tax credits across intra- and inter-state transactions. Consequently, different industries may need to conduct a cost-benefit analysis in terms of applicable input and output taxes.
"The unanimous passage of the Constitution Amendment Bill for Goods and Services Tax (GST) by the Upper House of the Parliament today is a historic moment. GST being single uniform law would make India one market with all states together. India is seen an as important investment market globally. With reduction in tax cascading effect leading to reduction in prices of products, India would become a preferred market for foreign investors. Also, reduced cost would make Indian products competitive in international market and hence, would increase the exports from India significantly. GST will further bring along with it the ease of doing business in India, said Gautam Khattar, Partner - Indirect Tax, PwC.
Economist Ajit Ranade, Aditya Birla Group believs that the impact on inflation will be marginal if GST rate is kept at 15-16%. CNBC-TV18 News on Twitter
According to Rana Kapoor, MD & CEO, Yes Bank, "The Government has taken a giant economic leap by passing the GST Bill. In one bold move, this will unify India’s tax architecture, make manufacturing efficient, and boost Ease of Doing Business, thus ushering a virtuous growth cycle in India for several decades up to 2050. Implementation of GST in one sweep will lead to efficient allocation of resources, smoothen supply disruptions, harness inflation, aid tax buoyancy and improve compliance, thereby reinforcing conviction in ‘Believe in India’." Biocon on Twitter
Finance Minister Arun Jaitley expressed gratitude towards all political parties for supporting the bill, expressing hope that implementation of GST would boost GDP growth, attract higher investment and promote Ease Of Doing Business in the country.
Meanwhile, many business leaders posted their reactions on Twitter.
Kunal Bahl, co founder and CEO of e-commerce platform Snapdeal took to his Twitter account as well: "Welcome passage of #GSTBill! Digital commerce removed geographical barriers, GST will remove tax barriers. One India means faster growth."
Adi Godrej, Chairman of Godrej Group expects the GDP growth to go up by 1.5 percentage points. He expects the industry to benefit, lower logisitics costs, boost consumption and increase investments in the country.
Neha Hiranandani, Director, House of Hiranandani, said, "One of the positives that might come from the bill is removal of restrictions on credit utilization that will strengthen the credit chain in the system. However, since GST will be applicable on the materials purchased by the developer to construct the project, it will have a direct impact on the total costing of the project. The bill treats construction activities as “work contracts” but is silent about guidelines on valuation of land and has kept the sector away from input tax credit. This could mean higher costs for the end consumer. Also, implementation of the bill will not subsume the stamp duty levied by the states, who may increase it from time to time to meet revenue targets thereby pushing costs higher for the buyer."
However, the hope comes with a word caution.
"It will be important to see what the final rate of GST would be because if the rate is higher than the existing cumulative taxes, it will certainly be dampener as it will increase the final cost for buying an under construction flat and defeat the purpose of the bill. While the intentions are noble and correct we feel for the bill to be successful all states must implement it together and at the same rate, else it will be cumbersome and bring additional compliance on an already strained sector," Hiranandani added.
Brotin Banerjee, MD & CEO, Tata Housing, said, "“The Goods and Services Tax is likely to be a game changer for the real estate industry, which is currently facing issues of multiple taxation amounting to over 25 percent in indirect taxes. With the uniform tax, developers will have free input credits on GST paid for services and goods purchased by them which will reduce cost and can be passed as reduction to buyers. It will benefit real estate sector by ensuring a uniform tax structure and improve tax compliance by developers. It looks at bringing in greater transparency for the sector and may minimize unscrupulous transactions. GST will have a cascading effect for the homebuyers, as developers with more margins in their hands will be able to restructure the cost of the products in favour of consumers.”
Shishir Baijal, Chairman & Managing Director, Knight Frank India, said, “After a long wait, we have finally taken the next big step towards the roll out of GST in the country. Among the various economic policies of the Narendra Modi led government, this will be the most important milestone.
At the macro level, the GST will create further efficiencies in the economy and will add to the ease of doing business in India. The simplification of taxes will widen the tax base which in turn will lead to higher tax collections. In its own way, it will also increase transparency levels within the economy. All these factors will help in transforming India into a favoured investment destination.
For the real estate sector, the GST will streamline the domestic supply chain that will lead to a consolidated and efficient warehousing infrastructure in the country. This will give the much needed push to the retail and industrial sectors to grow.
The positive sentiments after the passage of the GST bill will receive a further boost if RBI does its bit in reducing policy rates on the back of a good monsoon and controlled retail inflation in the economy.”
“GST will be the biggest reform since 1991 which will make India an attractive destination for foreign investments. Manufacturing will get more competitive due to the emergence of a national market as against the present fragmented one. The low tax to GDP ratio of the country will go up, helping the government to adhere to fiscal discipline and keep the inflation in check. It will improve productivity and transparency. Elimination of tax cascading is expected to place the economy in the growth trajectory of 8% and above with seamless flow of goods and services. GST rate above the range of 18-22% will be regressive. Clarity is needed on the continuance of existing exemptions especially those linked to investment made both at the centre and state levels. Input tax credit possible only after ensuring vendor remit the tax to their authorities – provision will be difficult to comply. Full-fledged IT system should be in place so that there is no dispute in arriving at the losses incurred by States in the first five years. Roll over on the 1st of April 2017 may affect the last quarter business of 2016-2017. Hence, implementation during mid 2017-18 would be ideal and preferable,” said Ashok Hinduja, Chairman, Hinduja Group of Companies.
The Bill will now go back to the Lower House, the Lok Sabha, for its assent on the new amendments; must be passed by at least 50 percent of the state assemblies before receiving assent from the President. Thereafter, a GST Council will be set up comprising state finance ministers and the Union finance minister. The Council will deide the details of the GST law and tax rate. The law will have to be passed by the Parliament. The states will need to pass their own GST laws. Therafter, the rules will have to be notified for finalising the processes under GST. Meanwhile, the information technology network will have to be put in place and tested for effective implementation of the GST regime.