India Will Likely Miss GST April Deadline As Panel Fails To Finalise Rates

A council of finance ministers from India’s union and state governments failed to finalize the main rate of the goods and services tax on Wednesday. It will again meet next month, raising concerns that the new sales tax might miss April’s deadline. Union and state finance officials met for two days in New Delhi to resolve their differences over the rates and tax administration. They will again meet on Nov. 3-4.

While the meetings could not break the deadlock, the contours of the discussions suggested India might end up with a tax structure with multiple rates. Experts say that the best taxes have to be low, flat rates, and few exemptions and warn that India’s proposed GST may deter compliance in a country where many businesses are skilled at minimizing their taxes due to its relative complexity.

“Having more rates will complicate the situation,” said M.S. Mani, senior director at Deloitte Haskins & Sells LLP; adding uniform rates in states would simplify the current tax structure. The new tax is a signature reform of Prime Minister Narendra Modi to make India an investor-friendly destination. The measure would harmonize a slew of federal and state levies. Supporters say the rollout of the new tax would boost the country’s economic growth by as much as 70 basis points. But a compromise-ridden tax threatens to rob any potential gains.

At the meeting, Kerala Finance Minister Thomas Issac told reporters that some states sought to impose a surcharge on luxury products such as sparkling water and tobacco products to lower interest rates on essential food items.
However, a senior Finance Ministry official told reporters after the meeting that the union government did not support the proposal, saying it would have a cascading impact. The ministry has proposed four tax rates, with the highest at 26 percent for about 20-25 percent of taxable items. Other slabs included 12 percent for food and fast-moving consumer goods (FMCG) and 4 percent for precious metals like gold.

READ ALSO : 

Finance Minister Arun Jaitley, however, remained optimistic that the November meeting would resolve the differences, paving the way for the tax’s implementation from April 1. To hit that timeline, union and state lawmakers must pass key bills this calendar year. Even then, there will be a race against time to set up IT systems and ensure millions of businesses are ready to file returns online.

You might also like