The Goods and Services Tax (GST) has been passed in the upper house of the Parliament of India, after receiving unanimous support for ‘one nation, one tax’ concept. This indirect tax reform has been awaiting clearance for several decades now and is likely to provide temporary boost to the domestic markets, with this vote was largely priced-in in the past month.
While this approval was crucial, it marks the first of a long road ahead towards implementation. Next will be the need to pass the state and central GST bills in the winter parliament session which is usually held during the fourth quarter.
Besides, the clearance from the Rajya Sabha, the apex body i.e. GST Council will be formed, which will formalize the important aspects of the structure, including the exact rate, revenue sharing agreement, revenue compensation, dispute mechanism etc. any minute developments in this regard will be closely monitored, given the busy state elections calendar in 2017, DBS reported.
“Odds are that the April 2017 implementation deadline will be missed, with 2H17 looking more feasible,” DBS mentioned in its research note Thursday.
Further, move to a GST regime is likely to be beneficial for the economy on multiple counts, even though there are likely to be growth, inflation and fiscal implications. Price impact will be highest if a single GST rate is adopted, but it is more likely that a tiered system would prevail, maintaining food and essentials at low rates, the report said.
Meanwhile, both the single rate and three-tier approach outlined by the GST panel are meant to be revenue-neutral. There is bound to be some buoyancy in fiscal collections for state and central governments. The panel’s proposed rate is a combined rate, with the GST council to determine how this rate will be divided.
However, the central government’s share in the revenue poll will increase as compared to the states, but the actual revenue losses will hinge on the exact structure that will put into place. State governments will also be compensated for revenue losses in the first five years. These details are likely to be outlined in the fiscal 2017-18 budget due to February next year.