Current Challenges to Implementation of GST

Currently, challenges to implementation of GST are as follows:

• Enactment of Constitution amendment bill needs consensus among ruling and opposition parties because ruling party is in minority in Rajya Sabha.
• Setting up IT infrastructure and an enabled centralised agency to settle the IGST claims and work as a clearing house.
• To estimate and formulate a Revenue Neutral Rate (RNR) of the tax, although centre has taken lead to comfort the states by promising compensation for five years.
• The estimation of the tax base in each of the states and since the threshold for the centre and states are different, of the tax base of the centre as well
• How the ‘hard to tax’ sectors will be dealt with. Such sectors include financial services, real estate and housing. As of now, real estate is left out of purview but later, its inclusion would be warranted.
• The training of tax personnel at both at the Central and state levels.
• To create a permanent institutional arrangement to negotiate, harmonise and monitor the reform process as well as the working of the new tax system.

Success of a GST ∝ Width of its coverage

The success of a GST system will dependent on the width of its coverage. All items in the tax chain must ideally be included in the GST system to achieve the best results. That will eliminate the incidence of paying tax on taxes, reduces the cascading effect of a tax system and enables producers of goods and services to enjoy the set-off benefits on the taxes they may have paid at various intermediate stages. But the proposed GST regime excluded potable alcohol, tobacco and petroleum products. Taken together, they account for a large chunk of the indirect taxes base in the country. This exclusion is largely triggered by some of the state governments desire to preserve their revenue. Added to this the real estate sector will not be covered under the proposed GST. Thus, all construction activities and the expenditure incurred on them would be outside the GST chain. The new GST regime with all these imperfections may perpetuate the barriers. However, it would be good to make a beginning even with an imperfect GST, with all its flaws, as long as the government is committed to addressing the concerns that arise over time.