'Doubt India will cut its first GST invoice on Apr 1, 2016'

Q: Now that the Constitutional Amendment Bill has been referred to the Select Panel, can that April 1, 2016 deadline still be met? Minister of state for finance Jayant Sinha has maintained that backend work is going to continue.

Sarkar: We have already crossed one big hurdle, which we should not forget, which is the bill has gone through Lok Sabha. It will go through the Select Committee’s discussion and come out in whatever form for Rajya Sabha to discuss in the monsoon session. Assuming the bill goes through the Rajya Sabha in the monsoon session, the chances of the bill getting ratification by majority of the state governments is definitely there.

The last technical hurdle for getting the Constitution to change to bring in the GST is just the Rajya Sabha. So, we are really at the last step. A month here and there should not disturb the overall schedule the government is aiming it which is April 1 2016.

Having said that, if the government is looking at enacting a legislation by April 1 2016, they are inline with their own target of getting GST in. However, if the government is saying that India, as a country and an economy, is going to cut its first GST invoice on April 1 2016, that might be doubtful because you would need to give time to all companies and businesses to catch up with the government’s plan of how exactly the nitty-gritties of GST will come about.

Q: How much time is needed by India Inc, by the chartered accountants, by the states, the IT guys, everybody to rollout the GST? What is the kind of preparation time that is needed?

Sarkar: Minimum nine months to a year.

Q: Even if GST had been passed today by the Rajya Sabha what you are telling me is it would have still been a challenge to roll it out on April 1?

Sarkar: No, what I am saying is today what we are doing is we are just changing the Constitution of the country to enable both the Centre and states, for the first time after Independence, to harmoniously levy a common indirect tax. That is not the GST Act.

There are five key questions that you need to address if you want to comply with any tax law. The first question is what is my taxable event? So, the taxable event definition is something which is coming out in the Constitution Bill. Taxable event is defined as a supply of goods or services or both. So, we have an answer to the first question.

The second question is what is the taxable value? Now, I am getting into a realm of possibilities. Possibly the taxable value would be the CIS value or the landed price of goods. However, I am not yet completely clear what will be taxable value for levying GST on services because that legislation is still settling down in the word of service tax.

The third question is who is the person liable to pay tax? There are a lot of conversations going around and none of us can say with assurance on whether, for instance in service tax, they have a domestic reverse charge concept where for certain transactions the recipient of the service has to pay, whether that concept will be carry forwarded into GST or not.

The fourth question is where am I liable to pay tax and which comes only from the GST rules. So, the rules need to be shared with the public for them to understand whether there is going to be an IGST (integrated GST) event and therefore I have to pay to the central government or whether it is a state GST event and therefore I have to deposit that with the state government.

The last one is what will be the format in which I have to return all business information to show that I am in due compliance with the law and that is exactly where all the automation, IT, systems overall, etc comes in.

Now, I do not have answers to four of the five basic questions. We have to wait till at least the draft GST model bill and rules are released for public consumption, for businesses to start doing some specific steps around GST preparation. My timeline of nine months to one year starts earliest from that date onwards.

Q: Are you also of a similar view that perhaps it is going to be difficult to ensure that GST is rolled out the first invoice following GST is indeed cut on 1 April 2016?

Dalvi: I agree with what Amit said. If government has clearly decided to go ahead with April 1, 2016 deadline and at the same time while the backend work is in good progress, from business or industry perspective, it will become more challenging if they wait for the final outlook of the draft law etc to come. Because industry and business will also need enough time to prepare themselves especially from making.

Q: I want to interrupt you there and find out what kind of preparations are we really talking about - of course lots of preparations but what is that industry already doesn’t know? After the Rajya Sabha passage, we will still not know for example what the revenue neutral rate is going to be. But you already know what all is going to be subsumed, what all is not going to be subsumed. I am assuming here that the select panel may not significantly depart from what the Lok Sabha has passed?

Dalvi: First of all IT requirements, IT changes, how could I know what could be the final framework if they bring out some other changes from the framework which is already agreed and for that, one would always look forward to the draft law at least and the rules.

In the absence of that, of course, one can make the broad preparation but actual implementation would take certainly a longer time plus it would be a clearly paradigm shift from the way the business being done today.

So, it will also have a impact on supply chain and logistics, overnight those changes if required can’t be brought in. So you need to give some time to industry to prepare. So while I don’t doubt the implementation of GST from April 1, 2016 from the government side, it would put the industry in a challenging situation if there is a further delay [in the passage of the bill].

Q: Do you think it is possible at all for India to meet that April 1, 2016 deadline?

Deshpande: I believe that goods and services tax (GST) deadline will not be missed. What will happen is...

Q: [Interrupts] What are you basing that assumption on? The government says, for example the minister state of finance, Mr Jayant Sinha just yesterday said that they will carry on backend work. So, what are you basing this assumption on? The monster session of parliament is a few months away.

Deshpande: True, but the backend work which is required to be done for the implementation of GST at various levels in the Central government and the State government is on. SO, what the finance minister will have to redesign however, if you have the GST roadmap then the milestones to achieve the GST roll-out on April 1, will have to be crunched. But there is still hope that on April 1, 2016, we will be able to see the GST being implemented.

Q: So, what is the kind of backend work that the government should do, must do till it is cleared by Parliament?

Deshpande: There are so many things that they need to do today. The GST council is going to be appointed only after the constitution amendment bill is passed. But the various references before the GST council, for example, the import committee of the state finance ministers can take that call and present it to the GST council when it is formed.

The next important thing is the GST network, which is going to be the IT back-bone of the entire GST can be ready. We have enough time then to get that, redirect that, preparatory steps need not wait for the GST roll-out.

And, thirdly and most importantly, government ought to roll out a communications client for the entire country to educate them about the GST, how they are going to be different, why it is going to benefit them, why it is going to benefit the economy. All of these things can continue parallel-ly while some of the ailments which have been referred to the select panel are being sorted out.