The introduction of the Goods and Services Tax (GST), a part of BJP’s manifesto, is a key fiscal reform eagerly awaited by India Inc. As a commitment towards the same, finance minister Arun Jaitley is holding meetings with state finance ministers and revenue officials.
Adoption of the GST is expected to ease doing business by managing the multiple indirect taxes applicable in the existing tax regime, removing cascading effect of taxes and widening the tax base. Further, experts estimate that this move can boost the GDP by 1%-2%. It is expected that such reforms will also help improve India’s image globally, given its consistently poor ranking in the ease of doing business index for the past few years.
Globally, GST has been adopted under different models depending upon variety of objectives to be achieved and their priority. The needs and concerns of developing and transitional economies may not be similar with that of developed economies. Though features like single rate with no exemptions, zero-rating instead of exemptions and immediate refund of unutilised credit are considered as desirable characteristics of an ideal GST regime, these may not be possible or desirable in the context of a particular country or a particular time, for political and practical reasons. Political considerations influence most tax policy decisions. More than 140 countries have introduced GST in some form with over 40 models currently in force, each with its own peculiarities. While countries such as Singapore and New Zealand tax virtually everything at a single rate, Indonesia has multiple rates and exemptions. In Australia, GST is a federal tax collected by the Centre and distributed to the states. On the other hand, Canada operates largely on a dual GST model. In India, given the federal structure, the framework has been laid down in order to bring in a dual GST model with concurrent levies at the Central and state levels.
However, the implementation of GST is not free from impediments. The necessary constitutional amendment will need the support of two-thirds of both Houses of parliament, and the BJP does not hold a majority in the fragmented Upper House. Further, half of India’s states will also need to approve GST for it to become a law.
States have historically insisted on the exclusion of certain goods like liquor, petroleum, alcohol, etc from GST, along with retention of the power to levy and administer municipal and entry taxes. Thus,