GST ushers in an ‘Indian Common Market’

After 17 arduous years of negotiations by successive governments at the Centre and in the States, the Narendra Modi government has finally introduced a uniform Goods and Services Tax (GST) regime that converts the country into a single market.

Political rancour over India’s most sweeping indirect tax reforms still runs high, but despite allegations and counter-allegations, uncertainties, and fears of high prices, the new regime has become a reality from July 1, more than seven years after the original deadline of April 1, 2010.

GST, which works as a tax on consumption, subsumes Central levies, including excise duty and service tax, as well as State value-added tax and levies such as octroi. Its historic nature lies in the fact that both the Centre and the States have yielded ground on their taxation rights.

Its impact will be felt most dramatically in the ease of inter-State movement of goods, which should provide a fillip to the economy.

To usher in the new tax, which it hopes will improve compliance, lower prices and boost revenue, the government held a glitzy function in the Central Hall of Parliament at midnight.

It was attended by President Pranab Mukherjee, Prime Minister Narendra Modi, Finance Minister Arun Jaitley as well as senior Finance Ministry officials and members of the GST Council. Many Opposition parties, however, stayed away.

Fertiliser rate pared Late on Friday, the GST Council, chaired by Jaitley, decided to reduce the tax rate for fertiliser to 5 per cent from 12 per cent and for exclusive tractor parts to 18 per cent from 28 per cent. “Some felt that the higher tax on fertilisers may increase the burden on farmers,” Jaitley said.

The GST Council meeting was followed by a celebratory dinner. “Since its formation in September 2016, the GST Council has held 18 meetings,” said an official release, adding that preparations involved over 27,000 man-hours and more than 200 meetings of Central and State officials.

However, Jammu & Kashmir, which supports the levy, is yet to implement it.

And not everyone is celebrating. Inadequacy of time for preparations has been a concern for businesses.

While large companies have put GST systems in place, medium and small businesses seem to be grappling with it. “The medium-term impact of GST on macroeconomic indicators is expected to be extremely positive,” said the CII, adding that businesses are fully prepared for the rollout.

However, sections of trade and industry in various States, including Rajasthan and Uttar Pradesh, went on strike against the new levy, saying it could increase taxes.

“A lot of people are working to get ready for GST at the last moment,” said Nimish Goel, Indirect Tax Head, International Business Advisors.

The Finance Ministry maintained that its systems are fully in place. The Central Board of Excise and Customs had asked all businesses to migrate and enrol on to the GST Network at the earliest. It has released the template for filing monthly returns.

But the shift to GST may prove tricky as companies could take time to adjust their pricing policies. And the jury is still out on its benefits for end-consumers.

Railways notifies The Railway Ministry has granted exemption from GST in respect of passengers travelling in second class, metro and sleeper class. GST levy is restricted to 5 per cent for those travelling in first class and air-conditioned coaches.

Transport of goods by rail will be taxed at 5 per cent, but essential goods like milk and agriculture produce will be exempt.

“No one has any idea about the inflationary impact of GST but it will likely result in a drop in prices. The non-food and non-fuel inflation has to be monitored. Most items of mass consumption will be out of the tax net,” said DK Pant, Chief Economist, India Ratings.

International rating agencies and foreign investors have given GST the thumbs-up.

The Council had fitted nearly 2,500 goods and services in the five-tier tax structure of 0, 5, 12, 18 and 28 per cent. With higher input tax credit, prices of most, if not all, goods may reduce, but services, most of them taxed at 18 per cent, could become more expensive.

Jaitley had on Thursday asked trade and industry not to raise prices. An anti-profiteering agency is on the anvil to monitor unjust price rises.

Overall, the government is cautious about the GST’s impact on the economy, but hopes for better growth in the medium term. It reckons it will take at least six to nine months for the gains to show.

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