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Picture Courtesy: thekararnivang.com
Picture Courtesy: thekararnivang.com

Delay in passing GST Bill will have a negative impact on Indian economy

The Goods and Services Tax (GST) Bill is the most crucial economic reform agenda envisioned by the Indian government. The political parties are divided on this bill and it will be a challenge for the government to get ‘thumbs up’ in the Upper House (Rajya Sabha). The BJP government says it will bring transparency in laving indirect taxes and can raise India’s GDP by one or two percent. On the other hand, the opposing parties are concerned about curtailing state’s revenue and centre’s more dominant role in taxing. This article will briefly explore the various aspects of GST Bill.

Highlights of the Bill

  • After the proposed amendment, GST will fall into the concurrent list meaning that state legislatures and parliament both would be able to utilize the concurrent power.
  • Only centre may have power to levy integrated GST on the interstate trade.
  • Alcohol and five petroleum products have been exempted from the proposed GST. However, petroleum products will be included in a later date.
  • GST Council will be created to optimising tax collections of goods and services by state and centre. Indian finance minister will be the chairman of this council. The GST council will take the important decisions pertaining to GST – which taxes will be levied by central or state government, the rate of taxes, and which goods and services will be included, etc.
  • The Centre will levy additional one percent tax on the interstate trade (supply of goods).
  • If a state incurs a loss due to implementation of GST, it may receive a compensation for five years.

Impact on Indian economy:

  • The complicated tax regime of goods and services has long hurdled the Indian economic growth. India still lacks a ‘unified market’ and GST bill looks promising in moulding the scattered economy into a homogenous tax regime market. Various central levied taxes such as VAT, excise duty, service taxes and central state taxes on interstate sales, and states levied taxes (VAT on sales, entertainment tax, luxury taxes and octori) will be framed into single tax system. This will reduce the business costs by reduction in the taxes levied on the movement of goods.
  • Under this bill, the companies will be taxed only on the value-addition instead of entire underlying value of the product and services.
  • States will be empowered to tax services what is not currently a norm, mostly it is levied by central government. Thus states will generate more revenue under the new GST regime.
  • According to National Council of Applied Economic Research: the government’s tax revenue will grow only by 0.2 percent but it will increase Indian GDP by 0.9 to 1.7%.

Some Issues:

  • The exclusion from the purview of the five petroleum products may lead to cascading of taxes.
  • The additional 1 percent tax levied by centre on interstate transportation of goods seems problematic. If GST promises to make Indian market into a unified one than this additional burden doesn’t fit into the objective. Interstate trade would remain costly and the burn will be ultimately felt by consumers.
  • The Bill authorizes the centre to levy taxes on interstate trade but some experts suggest creating an online platform similar to banking system.

The delay in implementing this long pending bill will have a negative impact on the economy. The withdrawal of Land Bill gave a negative signal to investors. And if GST bill fails to be ratified on time, investors may lose the hope in Indian economy. There are some minor loopholes in the GST bill which can be resolved or moulded as per the need. Assocham has strongly supported the GST bill and has appealed all political parties for quick passage of this long pending bill. It further said that it will enhance the investor’s confidence in Indian economy.

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