Why is there a Delay in Introducing GST in India?

Introducing the Goods and Services Tax (GST) in India was a monumental task, involving coordination with multiple stakeholders and extensive groundwork. This process, though characterized by a mere four terms—Intention, Direction, Groundwork, and Implementation—illustrates the complexity and immense effort required to reform the taxation system.

One Tax in Place of Many

The introduction of GST represents a significant shift in India's indirect taxation regime. Currently, the country is grappling with a labyrinth of indirect taxes levied by both the Central and state governments on the consumption of goods and services. In contrast, direct taxes, such as Income Tax, are imposed on a person's income.

The GST aims to consolidate a multitude of taxes into one unified system. At the Central level, key indirect taxes such as Excise and Duty will be replaced. On the state level, several taxes including Sales Tax, Entry Tax, and Octroi are set to be subsumed into the GST regime. However, taxes on petroleum, tobacco, and other specific goods will remain outside the scope of GST.

What Lies Ahead

Despite the clear benefits, several hurdles remain before GST can be implemented. The road to GST involves navigating through multiple stages, each with its own set of challenges.

Passage in the Rajya Sabha: The GST Bill must first be passed by the Rajya Sabha with a two-thirds majority. Delays due to adjournments and disruptions of Parliament sessions could impede this process.

Approval by State Legislative Assemblies: Assuming the Bill clears the Rajya Sabha, it must then be ratified by the legislative assemblies of at least 15 states—more than half of India’s 29 states. This process requires substantial consultation and approval from state representatives.

President’s Approval: Post-ratification, the President must approve the GST Bill for its enactment.

Formation of GST Council: 60 days after the Bill’s enactment, the GST Council will be formed. This council, comprising representatives from both the Centre and the states, will recommend the rules and structure for implementation. This step is critical but may delay implementation due to the diverse range of goods and services that need to be categorized into new tax structures.

A Big Move Forward

While the time frame until complete implementation is at least a year, it is crucial to recognize the potential benefits of GST once it is finally introduced. The transition to a unified indirect tax regime will enhance transparency and simplify compliance for both consumers and businesses.

The introduction of the Service Tax in 1994 marked a significant milestone by including a vast number of previously untaxed services within the tax administration framework. Today, the GST in India is poised to deliver a similar transformation by eliminating the myriad and complicated indirect taxes that currently exist between the Central and state governments.

Consumers will enjoy a more transparent taxation system, while manufacturers will benefit from smoother tax payment and administration processes. This unified taxation system is expected to streamline various aspects of the economy, fostering growth and efficiency.