Transition To GST Regime 

Go for April 11 rollout, refine later 

SIMULTANEOUS COMPLETION OF ALL PREPARATORY TASKS NECESSARY FOR A SMOOTH SWITCHOVER 

INDIA has debated and discussed the dual GST for a long time now. The GST is set for introduction from April 1,2011.However,many challenges remain and there continues to be considerable uncertainty around the implementation. The finance ministers announcements of July 21 and thereafter have been very encouraging. However, will the states respond equally positively The empowered committee had met again on August 4 in Delhi. What has transpired there S Madhavan, Leader, Indirect Tax Practice, Price water house Coopers ,India answers some of the key questions relating to the implementation of the dual GST in India.

What is the likelihood of the introduction of the GST by April 2011 

This is indeed a million dollar question today. Now, it seems quiet clear that there is an agreement between the Centre and the states and across the political spectrum that the GST is a must have for India to grow its economy significantly from where it is today. Nobody, therefore, believes that we should not progress to a GST from what we have today by way of an indirect tax regime. The lack of agreement is with regard to the three discrete elements namely: the GST rates, the division of taxing powers between the Centre and the states and on certain design elements of the GST. It is our view that the significant step forward that the Centre has taken on July 21,by way of indicating relatively high GST rates, the assurance of compensation to states for revenue losses and the enabling of the GST through the IT backbone, etc, should give the states a significant measure of comfort. It is true that these matters are as yet pending agreement and closure, but our conviction is that the Centre would go out of its way to accommodate the states in order to meet the April 2011 deadline. There is simply too much at stake for the Centre, the states and the country to once again miss the bus, having missed it in April this year. To conclude, it is our belief that despite the significant work that is yet to be done, there is an 80% chance that the GST would be introduced by April 2011.

What is the suggested timeline for the tasks that needs to be accomplished so that the GST is introduced from this date 

One possible time line that could be looked at is as follows. It must be understood here that several tasks can be done simultaneously and are hence not sequential. Introduction of the constitutional amendments in the monsoon session and their passage in the winter session/ratification by states thereafter: No later than quarter ending December 2010 Release of draft GST laws/rules by September/October 2010 and for comment: Period to conclude by December 2010 Roll out taxpayer awareness campaigns: Commencing from October,2010 till the Go Live date Reorganisation & reform of the tax administration: October 2010 through March 2011 Setting up of IT infrastructure: January 2011 
As can be seen, there is plenty to do but we are all stakeholders in the GST and need to make sure we meet our tryst with the April 2011 deadline.

What is the concern of the states regarding the suggested constitutional amendments 

As you know, the Centre has proposed a set of constitutional amendments vide its note which was circulated to the empowered committee when the finance minister met the committee on July 21.The apprehension is apparently with regard to the veto powers that are to be granted to the finance minister, in his role as chairman of the GST Council that is envisaged therein. As is now known, the proposed GST Council, comprising the FM,the minister of state for finance and all state finance ministers, will have the sole authority to legislate on and modify the provisions relating to the GST. Proposals in this regard will have to be passed by a majority of the Council members, whichever way the majority is defined. The states appear to suggest that this process is adequate to provide checks and balances to ensure a disciplined way to modify the GST provisions, should it be felt necessary, and the assumption of a veto power by the Centre is, therefore, unwarranted. Further, this seems to be the outcome of August 4 meeting of the empowered committee. Our view is that the Centre would be willing to accommodate the states in a manner as to achieve resolution on the point since the passage of the constitutional amendments in time for the GST to be introduced by April 2011 is predicated on agreement on this point.

What are the key learnings from the implementation of the VAT some years ago that could be of relevance for the introduction of the GST 

This is a good question since we often seem to forget the learnings from past experience, particularly on tax reforms. The learnings from the VAT implementation of the past can be categorised into those elements of introduction that were planned and done well and those that were not well thought through. On the things that were done well, harmonisation of rates, stakeholder communications and use of information technology were three aspects that facilitated acceptance and ease of implementation of the VAT. On the things that were not done well, the lack of a uniform transition to the VAT by all states and the resultant staggered introduction of the VAT was clearly the most glaring example. The other things that were perhaps not done well were in regard to capacity building in the tax administration and the lack of uniformity of the VAT law and provisions across the states. These experiences offer significant learnings as to how we ought to now go about introducing the dual GST.

Should we prefer a not-so-perfect GST by April 2011 or wait for a better product some time later 

The answer clearly is the former. Let us go ahead with an imperfect GST by April 2011 and refine the product over time. Let us not wait for the perfect GST, as it will never come about! 

Economic Times, New Delhi, 05-08-2010.