Is a Delayed GST Good for India?

Tue, 13 Dec Pre-Open

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India's wait for a goods and services tax (GST) that would take the country closer to one unified market may have just got longer. The plot on GST has quickly changed from being fundamentally the biggest reform in India's indirect tax structure until a few months ago to an administrative war now.

The government is set to miss the deadline for tabling supporting legislation for the GST tax in the ongoing winter session of Parliament after the GST council on Sunday failed to finalize the draft laws. This in turn puts the government's April 1 deadline of rolling out GST under a cloud. However, the implementation can only be delayed till September 2017 after which existing indirect tax laws will become null and void.

As per an article in Firstpost, there are two clear reasons why GST isn't happening now as planned. One, till now, there is no consensus on the argumentative issue of dual taxation between the Centre and state governments. States, especially the likes of Tamil Nadu and Kerala, are hell-bent on their demand that control of companies with annual turnover of less than Rs 150 million should rest with them.

The second reason is the change in political climate post demonetisation. Kerala along with West Bengal have been up in arms against the Centre's decision citing the negative fallout on the common man and on state finances. Both states have argued that given the adverse impact of demonetisation on state finances, GST's implementation should be delayed to prevent a double whammy.

But, in the post-demonetisation scenario, it is good both for the Centre and the state to have a late GST. Indian economy is already having a tough time with manufacturing and services sectors already taking a hit.

Even in cities, people are rationing their money and postponing their purchases. This will certainly impact companies' growth and profitability over the next quarter or two. The disruption and discontinuity would continue till the time the companies, distributors, suppliers, and other players in the value chain adjust.

The GST will have its own set of complications for the economy. The delay will allow the economy to settle from disruption caused by demonetisation. Besides, government will get more time to get the details of tax right while industry and business will have time to prepare.

For now, the government should contain the impact of demonetisation before the Modi-government can even think of readying to welcome the GST.

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