Implementing GST

Why April 01st 2016 implementation might be difficult…

As the GST Bill goes into one more grinding attempt to pass muster, the prospects of April 2016 implementation are getting dimmer. One of the pre-conditions for the Bill to become reality was that it should be passed in the winter session. With the delays in the Upper House, it almost seems certain that industry will have to forget about an April 2016 implementation of GST. No less a person than the State Finance Minister, Jayant Sinha has admitted to that effect. Let understand why!

Going beyond Parliament…

 Firstly, the NDA will require a 2/3rd majority in the Upper House to pass this bill. After seeing the fruits of a united opposition in Bihar, the non-NDA parties are not likely to give in without a fight. The intransigence of the government on key issues has not helped matters at all. Even if we assume that the bill does go through in the Upper House, there are a lot of procedural issues pending. The bill has to be ratified by more than 50% of the states. Then the respective laws have to be enacted by the individual states before the act can be implemented. That is still a long process and we are left with just about four months, which is quite inadequate.

Are corporates prepared for GST?

There is major preparation that Indian companies need to do before GST can be implemented. The existing software and systems that companies use for taxation, compliance and regulatory filing will have to change completely. The entire process migration and testing will be time consuming. It looks unlikely that Indian corporates will be ready with their systems and processes within such a short span of time.

Then there is the larger issue of remodeling the distribution as well as the warehousing logistics. That is a huge challenge. Today a large company like HUL or Hero Motocorp or Maruti will have a distribution, warehousing and logistics model that is tuned to the current duty structure. A shift to GST will mean that these companies have to entirely rethink their existing logistics set up to make them optimal and profitable. That is a long term effort!

Remember, GST is inflationary…

But above all, one needs to remember that GST can be inflationary in the short term. With CPI inflation at 5% and the RBI having a 6% target for 2016, the implementation of GST can make a mess of these calculations. Neither the government of the day, nor industry will be too keen to see inflation going up.

As Jayant Sinha has himself admitted, a practical date for the implementation of GST would be April 2017. That gives enough time to sort out the bells and whistles. But first and foremost, sagacity must prevail in the Upper House! ©

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