GST will contribute significantly to India’s tax base, improving the forecast for government’s fiscal deficit as a share of GDP from 3.7% in FY 16-17 to 3.3% in FY 17-18. However, “reduced appetite for reforms and a stronger opposition in parliament following demonetisation poses a risk to the implementation of the landmark legislation before its new deadline,” BMI Research said in its monthly report ‘Asia Monitor’.
The Fitch Group company said that even though the four-tiered GST structure on average is not likely to differ greatly from the estimated revenue-neutral rate of 15%, the system will support higher and more stable tax revenue growth by reducing tax evasion rates and simplifying the existing dual system of central government and local taxes. This in turn will allow the government to sustain growth-oriented expenditures without jeopardising its fiscal targets.
However, since the demonetisation has further united the opposition against the ruling party, BJP, in the parliament, this has led to a weakened support for their reform agenda. “Increased hostility in the parliament is not conducive to passage of bills”, BMI reasearch said.
In the GST Council meet held in New Delhi on January 15, a consensus was reached between the Centre and states to share the entire taxation base between the assessment machinery of the Centre and the states. 90% of all assessees with a turnover of Rs 1.5 crore or less will be assessed for scrutiny and audit by state authorities, the remaining 10% by the Centre. Above that limit, Centre and states will assess in a 50:50 ratio.
A new, more “realistic” date of July 1 was decided to roll-out the GST. The GST Council will meet again on February 18 to reach conclusions on the final leg of preparations for welcoming the new tax regime.
The Economic Times, 8 February 2017