Finance Minister P. Chidambaram is likely to announce in his budget speech Feb 28 a clear roadmap with timeframes to implement the much-awaited goods and services tax (GST) regime that aims to bring down state-level barriers and make India a single market.
Naina Lal Kidwai, president, Federation of Indian Chambers of Commerce and Industry (FICCI), said there have been positive developments in recent months that give an indication that finance minister would outline his strategy for the implementation of the GST.
An empowered group of state finance ministers during a meeting held in Bhubaneswar last month broadly agreed on the central sales tax compensation issue. The empowered group, headed by Bihar's deputy chief minister Sushil Kumar Modi, has set up three committees to deliberate on other aspects of GST, such as threshold limits for exemption, administrative control, and GST rates.
"These developments point towards a positive forward movement on the road to implementation of GST and FICCI is hopeful that a clear roadmap with timeframes will be specified in the budget speech," Kidwai told IANS.
"Laying down a roadmap for introduction of GST and its implementation would be the biggest reform in indirect taxation. Stable tax rates would send the right signal to industry at this juncture," she said.
The proposed tax reform that seeks to replace all the indirect taxes like central sales tax, state-level sales tax, excise duty, service tax and value-added tax (VAT) with a single and uniform tax rate across the country has missed several deadlines.
In his budget speech of 2007-08, Chidambaram had set a deadline of April 1, 2010 for implementation of the GST. The second deadline for the GST was April 1, 2012. Now it is hoped that Chidambaram might set April 1, 2014 deadline for the implementation of the new tax regime.
GST can be implemented only through constitutional amendment. It will require approval of at least two-thirds of the members present and voting in each houses of the Parliament. It must also be ratified by the legislatures of at least half of the states.
Kidwai, who is also country head of HSBC India, said the GST has the potential to add up to 1.5 to 2 percent to India's gross domestic product (GDP) growth, which has slumped to the lowest level in 10 years.
"GST will be a game changer for the economy and will act as a permanent stimulus, enhancing competitiveness of both the manufacturing sector and our exports," she said.
As per the data released by the Central Statistics Office (CSO) recently, India's GDP is expected to grow at 5 percent in the financial year ending March 31. This will be the worst performance of the Indian economy since 2002-03 when the growth was recorded at 4 percent.
Pranay Dhabhai, managing director, Akai India, said clear direction regarding the implementation of the GST regime would send a positive signal to investors and the markets.
"The proposed legislation to replace all indirect taxes on goods and services by a uniform tax will help boost the country's economic growth. There is a need to have a roadmap for contiguous implementation from the states else the companies will have to face taxation issues between GST-compliant and non-GST states," he said.