The new indirect tax regime – the Goods and Services Tax – is heading for another roadblock. The GST is likely to miss yet another deadline on July 1, when it is planned to be implemented.
The older taxes will cease to exist on September 15th according to the Constitutional Amendment Act. With GST Constitution Amendment Act, the old tax regimes will cease to be effective on September 16. To roll out the GST on July 1, Parliament should pass four Bills before the Budget session ends on April 12. The Constitution Amendment Act makes it mandatory to roll out GST on or before September 15. Without having the legislation in place, it is not possible.
If Parliament does not pass the four GST Bills, and government fails to roll out GST by September 15, it would not be legally entitled to collect any indirect tax from September 16. No government can have enough money to be in such a situation even for one day when it does not have the right to collect taxes.
There are two alternatives before the government, if it fails to roll out GST before September 15. The government may go to Parliament and seek its nod for the status quo before the permission to revert to pre-GST situation.
The second alternative before the government is to espouse the ordinance route or presidential extension. This simply means that the government will have to prove that the GST couldn’t be rolled out due to unavoidable reasons.
Unlike the income tax, GST is a transaction tax and therefore can be implemented in the middle of the year as well. A transaction tax gives the flexibility of introducing it anytime during the fiscal year, but at the same time it poses a challenge, because the related compliance gets triggered from the very first transaction.
A small change in the wording of law or a specific manner prescribed in the rules can lead to varying interpretations and the industry needs time to prepare itself. Rules are subordinate legislations which prescribe various operational aspects. The industry needs time to align business processes and IT systems to meet the changed legislative requirement.
A stable, transparent and predictable tax regime was promised by government. But this is certainly not easy when the industry does not know what exactly will be the shape of the law and how it is going to be implemented. This becomes more important when the entire indirect tax regime is going to see a change.
The GST law is not bad but its effectiveness is dependent on the way it is implemented. A stalemate in the council while taking up crucial issues and delay in finalizing the law and rules will be another economic disruption. The people of this country who pay taxes and business houses who collect taxes from people and pay it to the government are the major stakeholders in this tax reform, and the government should not take them for a ride.