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January 14, 2016
India Faces GST Delay After Bill Fails to Pass
by Stephanie Soong Johnston

Full Text Published by Tax Analysts®

Implementation of India's long-awaited goods and services tax regime may be delayed after the country's Parliament failed to pass it during its winter session, a practitioner told Tax Analysts December 29.

The Bharatiya Janata Party-led government has sought to introduce a new system that would simplify and streamline the country's complex tax system by replacing several indirect taxes levied at the federal, state, and local levels. Under the new regime, the federal government would levy and collect a central GST and an integrated GST on all interstate supplies of goods and services, while state governments would levy and collect state GST.

To that end, the government has been trying to pass a bill to add two new articles to the Indian Constitution to usher in a new GST system, planned to take effect on April 1, 2016. One article would give the country's federal and state governments the power to draft their own GST legislation, while the other would create a GST council to advise governments on issues such as tax rates and exemptions.

The bill had easily passed the Lok Sabha, the lower house of Parliament, in May, but it has been stuck in the Rajya Sabha, the upper house, in which the opposition parties hold a majority. The government had hoped to push the legislation through before the end of the Parliament's winter session on December 23.

According to Pratik Jain, a partner at KPMG India specializing in indirect tax, the April 1, 2016, implementation date doesn't seem realistic now that the bill has failed to pass. "Now the government can aim for October 2016 or April 2017," he told Tax Analysts.

Even after Parliament passes the bill, 50 percent of the states in India must ratify it, and respective laws would then need approval by Parliament and the respective state assemblies, Jain said.

The opposition seems to have three main concerns. One is a proposed new 1 percent tax on interstate supplies, which the government seems willing to reevaluate, according to Jain. In fact, a government-appointed panel on December 4 had submitted a report to the Finance Ministry with several recommendations for the new regime, including eliminating all existing interstate taxes and throwing out the proposed tax on interstate supplies.

The opposition's other two concerns relate to an 18 percent GST rate cap and the reintroduction of an authority for settling disputes between states. However, those two concerns "do not seem to be realistic, and one would hope that the government and the opposition parties are able to reach a consensus on these soon," Jain said.

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