Constant delays, lack of consensus among the Centre and the States resulted in waning interest of the industry. However, the passing of The Constitution (122nd Amendment) (GST) Bill, 2014 ('Amendment Bill') in the Lok Sabha has rebounded the belief regarding the Finance Minister's commitment to introduce GST in 2016.
GST in India is based on a dual GST model consisting of a Central GST ('CGST') to be levied by the Central Government and a State GST ('SGST') to be levied by the States on all intra-state supply of goods and services.
Further, in case of interstate supply of goods and services, there would be an Integrated GST ('IGST'). GST would subsume most Central and State taxes such as Excise Duty, VAT/CST, Service tax, Octroi/Entry tax etc. This would clearly reduce multiplicity of indirect taxes, enhance credit availability and minimise cascading.
The GST may add up to 2 per cent to the GDP. But it cannot be said to be a perfect legislation as it still leaves several open points such as taxability of branch transfers, possibility of 1 per cent non-creditable origin tax on all inter-state supply of goods (including branch transfers), bands of rates for SGST, possibility of state-wise credit pools, etc.
However, even with the drawbacks in the current structure, GST would be a big break from the archaic indirect tax laws of India and a step towards internationally accepted comprehensive value-added indirect tax system.
GST being a whole new mechanism of taxing supply of goods and services would require a relook at the tax positions: revised credit availability, supply chain realignment, compliance changes it would trigger, revamping of the ERP systems to make them GST compatible, reviewing vendor/customer contracts, relook at business models, change in law clauses etc.
Thus, with a tax reform as big as GST which will not only impact indirect tax but various aspects of business as discussed above, the industry may require as much time as a year to be ready for GST.
Prior to seeing the light of the day, the Amendment Bill still needs to be approved by the Rajya Sabha, and subsequently by over 50% of State legislatures. However, considering the Government's commitment towards roll out of GST; it seems only a matter of time as to when GST would be implemented. Once the Government has the requisite legislative approvals; it may not give enough transition time and would try to introduce GST at the earliest.
Accordingly, it's high time that businesses look at GST as a reality and start taking appropriate steps to be GST ready.
(The author is a Tax Partner at Ernst and Young. Views expressed are personal)