Introduction of goods and ST in 2016 - A myth or reality?

Media reports and press statements by Government Officials seem to suggest that the Union Government is keen to introduce Goods and Service Tax in the year 2016. While they themselves have given up hope of its implementation from 1.4.2016, there seems to be a claim by some quarters that it is possible to implement GST from 1st October 2016. This article attempts to consider the feasibility of introducing GST in the middle of a financial year by analysing the steps yet to be taken and also the practical issues.

Pending measures:

The Constitutional Amendment Bill, 2014, has been passed by the Lok Sabha but yet to receive the nod of Rajya Sabha. The Select Committee has submitted its report on 22.7.2015 but could not be debated and the monsoon session ended without passing the GST Constitutional Amendment Bill (“GST Bill” for short). The Government contemplated calling a special session of Parliament to pass the GST Bill but seems to have given up hope due to political compulsions and elections in the State of Bihar. The Government has pinned hopes of passing the much awaited GST Bill in the Winter Session. Passing the GST Bill is not the end of all and would at best pave way for taking further steps for introduction and implementation of GST. There are a number of[1] other steps to be taken, which are discussed in tabular form with comments/remarks:

Practical Challenges:

Going by the above analysis of steps to be taken it is possible to hastily reach a conclusion that the Government is well within its reach of implementing the GST law from 1.10.2016. There are weighty issues, which need not be legal steps but practical steps to be taken by any Government. This is more-so when GST would spell the death knell of some existing taxing statutes and would lead to a paradigm shift in indirect tax system. It could also be a serious issue politically. The following steps would be of paramount importance for successful implementation of GST.

IT Infrastructure: GST law would be an IT driven law and we are not sure whether all the States and Union Territories in India are currently equipped with infrastructure and requisite manpower to embrace this law. Except few States like Karnataka, Maharashtra and Gujarat, who have pioneered the E-Governance model, we have not heard about this trend in other States and Union Territories. In some States even today only manual VAT returns are in vogue. They also need to be taken on board.

Officers training: The success of GST law would largely depend on the way it is implemented. Since it is a new law, the focus should also be on trust based administration. The unlearning of the old law and learning of GST law is imperative but cannot be accomplished overnight. This could take quite some time as faculty and resource persons should be developed and nurtured after the law is passed. All Central and State Government Officers whether in VAT, Service Tax, Central Excise or Customs Departments should get themselves acquainted with GST law. This again cannot be happen in a jiffy.

Further GST law would heavily depend on Information Technology and hence proper training has to be given to the departmental officers for effective usage and implementation.

Public Education: GST law would subsume many State and Central Indirect Taxes and even the taxable event would be supply of goods or services. The general public including trade and industry have to be educated about this new law by creating awareness. Seminars and workshops should be organised by the Government in association with trade/industry bodies or associations to spread awareness about this new law.

New Registrants: GST is expected to bring within its fold many new registrants, who have been hitherto kept outside the purview of tax mainly due to exemptions and since the taxable event is wider in scope in GST.

[3]Transitional Issues: There are many areas, which have to be addressed as a part of transition to GST. There are concerns about registration, carry forward of credits and taking new credits, pending refund/rebate claims, review of contracts, change in taxable event for incomplete transactions, pending assessments, job work transactions, treatment of stock in hand, filing of returns etc. The need for smooth transition is imperative for success of GST. Therefore clear procedures if available without vagueness would help smooth transition to GST regime. Practitioners and advisors would require adequate time to study the law to resolve the myriad issues, which are sure to arise.

Past Disputes: There are many disputes pending in the context of present indirect tax laws (both Centre and State), which are at various stages viz., adjudication or appellate level. The adjudicating/appellate authorities, Courts and Tribunal are burdened with the pending cases. Before GST is implemented the Government should find ways and means to resolve these disputes. A possibility of introducing a dispute settlement scheme on the lines of Kar Vivad Samadhan Scheme (KVSS) should be explored, which would enable the litigants to resolve many matters. If the past disputes are allowed to continue then the adjudicating/appellate authorities and Courts/Tribunals would be pre-occupied with old cases and would not have time to decide any issues/disputes cropping up under GST law.

Tax Administration (alignment/merger): After GST is implemented both the Central and State level officers are expected to work under one roof and in tandem by giving up their differences and non-alignment in the old regime. Cadre differences may arise, as presently in Central Excise and Service Tax, the departments are headed by Officers of the Indian Revenue Service, whereas in the State Commercial Departments, the Commissioner is from Indian Administration Service (IAS) and his subordinates would be from State Administration Service. In Central Excise and Service Tax we have posts like Principal Chief Commissioner or Commissioner and Chief Commissioner or Commissioner etc. How these differences would be addressed in the GST regime remains to be seen and there is no whisper or murmur about it as of now.

Conclusion:

Considering the above challenges, it would be advisable to defer the implementation of GST to 1st April 2017 than bringing it in a hurry. The experience of implementing VAT in all States across India during 2003-07 would provide valuable direction for successful GST implementation. The transition should be smooth and not abrupt. As the Government keeps its hope alive of bringing GST from 1st October 2016, the authors believe that it would be a myth and not a reality, considering the practical challenges ahead. Despite this if the Government thrusts the new law in the middle of the financial year, it would probably have a limited success and may bring in untold miseries to the tax payer. The possibility of partial acceptance (as in VAT regime) could also be the result, which would not be palatable and would sully the real benefits expected from GST.