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Speaking
at the Hindustan Times Leadership Summit today,
Mukherjee indicated that there are too many unresolved
issues. "In large areas, we have been able to arrive at
the convergence of views. At the same time, it will take
some legislative measures, including a Constitutional
ammendment. That has its own space. I am trying to stick
to the time schedule but I will not be surprised if
there be a slippage of a few months." He added that the
government would not rush in with GST only for the sake
of meeting the deadline.
PriceWaterhouseCoopers (PwC) has put out a white paper
on the features of the proposed GST model for India. In
an interview with CNBC-TV18, S Madhavan, Executive
Director, PwC, expects a three-six month delay in
implementation of GST. The real challenge, he says, lies
in persuading all states. According to him,
constitutional changes are required to permit the
government to legally tax supplies beyond the
manufacturing stage. "Constitutional changes will not
cause any major delay. It may be taken up in the winter
session. If there is consensus available with regard to
all elements of GST, the amendments should go through by
November. "The September 2010 roll-out is possible only
if the draft GST code is presented in
November-December."
He feels
industry would need six months thereafter to adapt.
Madhavan expects the normal rate not to exceed 16%.
Q: The
Finance Minister is finally saying that April 1, 2010 is
unlikely to be met. This is something that we have been
debating and discussing for a while now and you were of
the opinion that that deadline would not be met. How
realistic a timeframe can we now expect because he is
saying, a few months’ delay. How soon can we actually be
ready to implement the GST?
A:
Clearly, the expectation is that it is not going to be
postponed by one whole year, let’s say to April 1, 2011.
That’s the first point. My personal expectation is that
it is anywhere between 3-6 months because if you are
talking about a worst case scenario of six months you
are talking about September 30. I believe between now
and September 30, which is almost a year, one can get a
lot of things done in terms of both the constitutional
changes and also several other elements of the change
over from the present tax system to the GST.
So in my
view, a best case scenario of a postponement if there is
a postponement of three months. But on a worst case
scenario, about six months.
Q: What
are the hurdles at this point because we are still
discussing and debating the rate and the other
structures, the state finance ministers are going to
meet in November now to finally finalise the draft? But
to your mind, outside of the constitutional ammendments
that are required, what continue to be the key
challenges and the hurdles at this point?
A: The
constitutional changes in themselves should not pose a
hurdle in terms of the timelines because they are going
to be taken up in the winter session. But the challenge
here is in terms of persuading the states, all of them
need to be on board on the dual GST model and also they
need to be on board with regard to how the rates will
apply to goods and how the rates will apply to services
and particularly with regard to how interest rate
supplies of goods and services might be taxed.
To
illustrate some few new challenges which are continuing
to be a debate and discussion between the central
government and the empowered committee? So once these
issues are resolved, which should happen either on the
November 10 when the meeting with the FM is scheduled to
take place or immediately thereafter, I don’t expect in
terms of the process that is required to pass through
the constitutional change and that should pose a hurdle
at all.
Bear in
mind that the constitutional changes are essentially
required for two reasons. One is to ensure that the
federal government is legally able to tax taxable
supplies beyond the manufacturing stage. Today the
centre is limited to taxing transactions only upto the
manufacturing stage. So, one is to permit the centre to
go beyond that stage, and also equally for the states to
charge GST on services. So today only the federal
government is able to charge that.
So the
reason for the constitutional ammendments is essentially
two fold. But as I said, if consensus is available with
regard to the other elements of the GST by in about a
month’s time, I do not believe it is difficult for the
constitutional changes to be taken up in the winter
session of Parliament and then to be concluded.
Q:
Let’s assume that the Finance Minister decides that the
GST will be introduced midway in the next financial
year. Would introducing it midway pose some challenges?
In terms of the preparation of the industry both from
the IT as well as the switch over, do you think six
months is enough time or should perhaps we just say
let’s go ahead and delay it by a year?
A: The
ideal situation is clearly when you switch over from the
present VAT excise system to the dual GST at the
beginning of the fiscal year. That is clearly the ideal
situation. Therefore, we were all hoping that the system
would be in place by April 1.
If that is not possible for the reason we have just
described, then the question is do we wait for another
full year to pass before implementing the GST or should
we ensure that the GST is around - let’s say it’s never
perfect, and we need to perfect it as we go along - but
let’s assume that there is a GST which is more or less
flawless to use Dr. Kelkar’s term of about 80-90% there.
I would rather say that we took that GST on board and
work with that GST to make it more refined and perfect
as we go along.
That is
the response to with regard to as to whether you are to
ideally postpone it for one full year or you would want
to shift it over to either the three or the six months.
Having
said that, clearly there are challenges when you shift
the whole structure in between the fiscal year in terms
of IT preparedness, in terms of transitional issues with
regard to how do you take credits forward and how do you
account for inventories as on the changeover date. One
can multiply such challenges. And therefore from a
business disruption point of view, I would think the
least disruption would be ideally when you switch over
from the fiscal. But the last point is in terms of the
readiness of business itself to enable the changeover to
happen.
If you now
suggest that we are now in the end of October and the
timeline to switch over to the system is about six
months, I would think that, it’s a fair time period of
six months to enable industry to change over, provided
the white paper is released in time by early November
and provided also that the draft GST code atleast at the
federal level is released no later than the middle of
November or perhaps towards the third week of November.
If those
events were to happen then industry has the ability make
the changeover and while they can keep fine-tuning those
changeovers for the rules and regulations to happen,
they can atleast begin the process.
So I would
think that from a readiness point of view if the events
that we expect to happen in November do happen, then I
think a six month period for changeover for business is
good enough.
Q: One
quick point, in terms of the rate itself we get the
sense that a lot of states are pushing for a higher rate
16-16.5% or perhaps thereabouts. At this point in time
are you in a position to comment about what can really
the rate be despite the fact that it is a dual rate
structure? What sort of ballpark figure are we looking
at?
A: My
conviction at this point in time is the normal rate.
Bear in mind that we have already agreed a dual rated,
dual GST so to speak as far as good are concerned. So
there are two rates. The states have talked about a
range of between 8% and 9% for the normal rate for state
GST and I believe they have also looked at a 4-5% as the
concessional rate.
So
assuming that the centre follows suit with similar
rates, the range therefore for the goods charged at the
normal rate will be between 8% and 9% at the state and
at the federal level. I expect the rate to be at the
lower end of 8% and therefore the aggregate to be 16%.
And for the concessional goods also I expect it to be at
the lower end of 4% which means 4%+4%= 8%.
So my
expectation is that the normal rate should not exceed
16%. I am aware that there is a debate going on with the
states as to whether that is good enough to ensure or
assure the states about revenue neutrality.
But bear
in mind also that the center has some out with a fairly
clear assurance with regard to compensation for states
who are out of pocket as a result of the change over to
the GST. So I would believe that that assurance is good
enough and therefore the state should be amenable to
look at a revenue neutral rate, if I can use the term,
of a dual GST of 16% on goods.
Source
: Moneycontrol.com, dated 31/10/2009 |
