Prime Minister Narendra Modi calls it a good and simple tax but concerns abound over the implementation of India's biggest indirect tax reform.
(Image: Hannibal Hanschke/REUTERS)
It was no ordinary time. It was India’s date with history. The entire nation waited with baited breath as Prime Minister Narendra Modi and President Pranab Mukherjee launched the much-awaited Goods and Services Tax or GST, India’s biggest tax reform since Independence.
Modi devised a new acronym for GST, calling it a “good and simple tax”, in a special midnight session at Parliament’s Central Hall, in the company of Vice-President Hamid Ansari, Lok Sabha Speaker Sumitra Mahajan, Finance minister Arun Jaitley and other dignitaries.
“There couldn’t have been a better place to launch the GST,” said Prime Minister Modi at the event that saw the who’s who of the political echelon. Among industry leaders, Ratan Tata was present at the event.
“Today at midnight we all will determine the road ahead for the country. GST is an example of co-operative federalism. It is not the achievement of any single government or party. It is a collective effort…. Best brains of the country have worked for the creation of GST,” said Modi, looking composed as the countdown to the historic tax reform was drawing to a close.
The launch event began at 11 pm. “GST means simple and good tax. It will help curb black money, reward honesty…. It will end tax terrorism,” he added.
Mukherjee, meanwhile, lauded the government for the July 1 rollout. “It’s a moment of personal satisfaction to me,” he said, recalling his stint as a Finance Minister in the UPA government when he tried to push the GST. “I am fortunate to be part of this journey. Concentrated efforts were taken over the past several years to build consensus for the replacement of taxation mechanism,” said Mukherjee.
It was a moment of pride for the country in the hour-long glittery event, which was reminiscent of August 14-15, 1947, when India’s first Prime Minister Jawaharlal Nehru delivered a midnight speech in Parliament on “Tryst with Destiny”. Another time when a gala midnight event was held in Parliament was in 1997 when India completed 50 years of Independence.
“Every decision in the GST council was taken with a consensus, not a vote…. India will now begin a new journey,” said Jaitley. A majority of the opposition parties, however, including the Congress and TMC boycotted the midnight event.
With GST becoming a reality starting July 1, 2017, the country will now have a single economic zone with common indirect taxes that will completely transform the indirect taxation landscape in the country. In a departure from the normal practice, GST will be administered together by both Centre and States.
Barring Jammu and Kashmir (J&K), all states have geared up to introduce the new tax structure under four tax slabs - 5, 12, 18 and 28 per cent. However, a cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, over and above the GST rate of 28 per cent for payment of compensation to the states. The threshold limit for exemption from levy of GST is Rs 20 lakh for states except for the special category, where it is Rs 10 lakh.
All in all, India has embraced the ‘one nation, one tax’ concept starting today (July 1, 2017) that is expected to tide away the patchwork of tariffs into a single levy. “This is a momentous occasion for us….an accomplishment to be truly proud of! As we flag off GST, although it is still far from perfect, we realise how much better it is than the myriad taxes we’ve been subjected to over the last several decades. Once the regime settles in, we can look forward to it spurring the economy by incentivizing manufacturing and making business decisions independent of taxes,” said Pratik Jain, Partner and National Leader, Indirect Taxes, at PwC.
Fear of the Unknown
While Modi has called this a good and simple tax and it is expected to transform the way India Inc does business, there is the fear of the unknown which still lurks. How simple is it really? How prepared are corporates and consumers to embrace the new tax structure?
“Like an Indian wedding, amidst all anxiety, confusion and of course pages and pages of notifications and circulars, GST has arrived,” said Waman Parkhi, partner, indirect taxes, at KPMG. “There are hiccups in registration which the Goods and Services Tax Network is solving on war footing,” he added.
GST envisages all transactions and processes to be done only through electronic mode, to achieve non-intrusive administration, according to a statement issued by the finance ministry. While this will minimise tax payers’ physical interaction with the tax officials, industry experts say there may be some ‘initial teething troubles’.
Some of India Inc’s most prominent voices have already voiced their opinion. Chanda Kochhar, managing director and CEO of private lender ICICI Bank calls GST, “a transformational structural reform which will have multiple benefits – the creation of a national market; enhanced ease of doing business; greater productivity & efficiency; and improved tax compliance.”
“All stakeholders are working together for a seamless transition to this new paradigm. This reform will result in benefits for all participants in the Indian economy, including both businesses & consumers,” Kochhar adds.
Biocon Ltd's chairperson Kiran Mazumdar Shaw has said that even though GST was path-breaking, the manner in which it was launched is “cumbersome’. “We really don’t need to start with a perfect GST rollout…we could have actually come out with a very simple rollout,” she told media on Friday.
“Why have we made it so complicated that we have so many people getting worried about how we are going to roll it out? Why are so many sectors worried about how they are going to deal with the GST rollout”? Shaw has asked.
Rajeev Dimri, leader indirect tax, BMR & Associates LLP says: “One cannot expect that a mammoth change like this will not make few people anxious or restless. It would also be appropriate to keep in mind that any policy or law that has come into being is not perfect and free from any lacunas on day one of its coming into force. ”