GST Bill is passed by Indian Upper Parliament

The long awaited GST Bill, which has been pending for the past six years, was passed by the Indian Upper of Parliament (Rajya Sabha) on 3 August 2016.

Perhaps the biggest tax reform since 1947, GST has the potential to lead the economic integration of India. Once implemented, it will replace the myriad state-by-state tax rules with a single tax, and for the first time create a single national market for the movement of goods. This is expected to generate millions of new jobs, improve enterprise productivity and significantly empower consumers and producers. The introduction of GST is predicted to boost India’s GDP growth by between 0.9-1.7 per cent, according to a study by the National Council of Applied Economic Research.

Although Modi’s administration had been pushing for this crucial legislation since he assumed office in May 2014, it had been stuck until now in the Rajya Sabha where the ruling party doesn’t have a majority. However, prospects brightened in July when the Union Cabinet acceded to one of the Opposition’s three key demands and dropped the one per cent manufacturing tax, while simultaneously providing a guarantee to compensate states for any revenue loss during the the first five years of this indirect tax regime.

Richard Heald, Group CEO of the UK India Business Council, explained:  “We very much welcome the long-awaited passing of this landmark Bill. It is a real game-changer for the Indian economy, and will be warmly welcomed by our members who last year identified implementation of the GST as the single most important reform the Government of India should enact.

“We at the UK India Business Council believe GST will give a significant boost to economic growth by creating a single national market, enhancing the efficiency of intra-Indian movement of goods and services, and boosting GDP growth further. This is bound to increase India’s global competitiveness as an investment destination.

“We congratulate Prime Minister Modi and Minister Jaitley, State Governments, and both Houses of Parliament for their patience and the constructive outcome which will provide fresh impetus to British trade and investment in India.”

Meanwhile, Mukesh Rajani, Partner and Leader of the India Business Group at UKIBC’s strategic partner PwC, commented: “This is a momentous step in the journey towards introduction of GST. As a way forward, now the Bill will need to be approved by Lok Sabha and then, at least half of the States would need to ratify the proposed amendments to the Constitution. After that, the President will give assent to amendment of the Constitution.

“With this, the Government is likely to push for 1 April, 2017 as the date for GST implementation. Considering the limited time available and multi-dimensional impact of GST on businesses (such as on product pricing, working capital, information system, supply chain, contractual arrangements etc.), industry would immediately need to assess its preparedness. ”

Consequently, while applauding the passing of the Bill in the Upper House, the UK India Business Council recognises that considerable continuing effort will be required to put GST into action. The amendments from Rajya Sabha will have to be incorporated by the Lower House, a minimum 50 per cent of state legislatures will have to approve the Bill, the President must sign the Bill into law and the GST Council will have to be formed – against a planned timeline for enactment on 1 April 2017. However, all of these hurdles should be manageable.

In addition, there are certain areas which will still be subject to state-by-state sales duties – critically, duties on petroleum products and on alcoholic beverages. We must work to eliminate these anomalies over time.

However, this is still a huge step forward for India and for the economic reform agenda of Prime Minister Modi. With continued political leadership, vision and flexibility we are confident that India – its economy and its people – will soon be enjoying the benefits of the GST.