The India’s Parliament was adjourned on May 11 for the Budget Session and the GST bill was not introduced in this session. As often discussed the GST will be a significant reform which will alter indirect tax and business processes in India. However, until the legislation is passed the GST will not occur. Now the earliest the GST will be implemented will be April 1, 2017.
The Finance Minister continues to negotiate with the opposition party to reach a consensus on what the GST will contain. The same issues remain: how GST disputes will be resolved, a uniform rate and a constitutional rate for the GST. The Finance Minister is opposed to having GST disputes determined through the judiciary which will impede the ability of India to grow. In most other jurisdictions, issues regarding how indirect taxes are applied are usually determined through legislation or through the rulings of the local tax office.
The hope had been to introduce the GST legislation in the second half the the budget session. Instead the second half the budget session focused on a recent incident regarding the Congress Party and the purchase of helicopters for VIP transport. Last year discussions around the introduction of the GST in the Upper House were delayed due to fighting between the two parties on different scandals.
While the wrangling on the political front continues, the work on the IT infrastructure, the GST Network (GSTN) continues. Infosys was awarded the contract last year to build and implement the GST network. The GST Network will allow for the interchange of business information between the supplier and purchasers. A key piece will be the ability of supplier’s to upload invoices and purchasers to download those invoices which will be the key for GST compliance. This approach is a major change from the present approach in India which requires forms to be presented in three or four copies.
Unrelated to the GST, the Finance Bill was passed and the Krishi Kalyan Cess will come into effect 1 June 2016, which will increase the general rate of taxation on services from 14.5% to 15%. Keep in mind last year the tax rate on services was 12.36% so there has been a 2.5% increase in taxation of services in India in less than a year.