MUMBAI (Commoditiescontrol) – While there are no whispers about the recent meeting of the GST Council held on December 1 and 2 on further development on its implementation, it is learnt that state finance ministers reportedly discussed the effect of demonetisation on their finances with finance minister Arun Jaitley, which was outside the agenda and does not fall into Council’s jurisdiction. The states were raising the issue for pure political reasons and to bargain for higher compensation.
Nevertheless, two back to back reforms will be harder to implement raising a moot question. What will be the economic impact of GST implementation soon after demonetisation. For GST implementation, the economy needs to be in thriving mode and cannot be implemented after compression.
There are various estimates about the impact of demonetisation on demand and growth, and how long the impact will last. However, there appear to be a consensus among experts that there will be an immediate adverse effect. Small businesses are most affected by the move and they are the ones who will have to make major adjustments for the GST regime.
Changing taxation system, like switching over to GST would be a disruptive development. With demonetization compressing the economy, the disruption now will be even more larger. There will be no smooth adjustment even for larger firms but are, more or less GST-ready, but will be affected by a dropping demand.
Now the colossal task facing the government is that it cannot wait for the economy to settle down before moving into GST regime. There is a constitutional timer ticking fast as Jaitley pointed out, that GST cannot be delayed beyond September 2017. The constitutional amendment ushering in GST says the prevailing indirect tax regime can continue for just a year after the Act was notified. Since it was notified in September, the current tax regime will have to end in September 2017.
Even in normal course, implementing GST from April 1 would have been a bit of a stretch. Supporting legislations are yet to be passed and businesses will need to understand the implications and prepare for the new regime. The initial one or two years of GST will be a bit painful. As situation stand, even the GST Council has not cleared the draft of these legislations.
The next meeting of the GST Council will be held on December 11 - 12. Till then one will have to just wait and watch how the easing of cash circulation progresses.
(By Commoditiescontrol Bureau; +91-22-40015522)
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