With more signs of the balancing of political equation, most of us are hopeful that the Constitution (122nd Amendment) Bill, 2014 (“Constitution Amendment Bill”) for empowering the Centre and State Governments to introduce Goods and Services Tax (“GST”) will be cleared by the Parliament in this Monsoon Session.

Assuming that things run smooth for the Union Government and the ConstitutionAmendment Bill is cleared by the Parliament in the current session, one moot question will still remain – can GST be implemented on the target date of 1 April 2017?

Legally speaking, in the light of our Constitutional and judicial framework, there are as many as following fourmajor stages to be crossed for actual implementation of GST after the passage of Constitution Amendment Bill by the Parliament.

Stage 1: Ratification of GST Bill by States

As the Constitution Amendment Bill involves amendment to the lists in the Schedule VII of the Constitution, in addition to the clearance by the Parliament, itwill require approval from at least half of the States(i.e. minimum 15 States) before it receivesaccent of the President and become a law.

The process of tabling the Bills in various State Assemblies and its clearance by the requisite number is not an overnight task.  On a previous similar instance, it took over four months for clearance of the Constitution Amendment Bill pertaining to National Judicial Appointment Commission by the requisite number of States, that too in a scenario where (unlike GST)all the major political parties were aligned and wanted a fast introduction of theBill.

Stage 2: Recommendation on GST law by GST Council

After amendment of the Constitution, GST Council can be formed.  GST Council will give its recommendation on important aspects of the GST law such as tax rates, slabs, exemptions, threshold etc.

for finalizing the GST draft law (that was brought in the public domain a few days ago) after deliberating upon the comments/ suggestions received from Industry and other stakeholders.

Given the composition of the GST Council and the respective voting weightages, each of the recommendations would require concurrence ofat least 20 States/ Union Territories (with legislation) and the Centre (assuming all the members are present and cast their vote)before they could be incorporated in the final draft of the Centre and State GST laws (to be enacted by Parliament and State Legislatures).

Stage 3: Enactment of GST law by the Centre and States

While Constitution Amendment will only ‘empower’ the Centre and State to make GST law, for actual introduction of GST, the Parliament, 29 State Assemblies and 2 Union Territories with legislation (i.e. Delhi and Puducherry)would be required to enact the Centre and State GST Bills at their own level.  This legislative exercise is very comprehensive and critical because failure by even one government(due to various contingencies such as announcement of elections, Presidential rule etc.) would derail the process of implementing GST in one go.

Stage 4: GST Preparedness

GST being a big-bang reform, its effective implementation would require following among other important actions:

– Framing of Rules, Regulations etc.: Apart from passing the enabling Acts, the Government would need to frame and implement detailed rules, regulations, notifications, forms etc. covering procedural aspects of GST prior to its implementation date.

– IT Backbone: GST Network for payment and settlement is a pre-requisite for implementing GST. GSTN is not yet ready and is expected to be functional by February 2017.  Due to the narrow timelines, any major delay in thoroughly testing and launching GSTN would delay the GST rollout.

– GST Administration: Under the GST regime, both Centre and State tax authorities would be responsible for administering GST.  Although Government has already started training exercise for Centre as well as State authorities, but the same will remain incomplete till the Act, Rules, Forms, IT setup are finalized.Even division of administrative powers between the Central and State level tax authorities would involve lot of deliberations.

– Taxpayer Education: This is the most critical aspect for successful implementation of GST.  Countries that have introduced GST in past, adopted a robust communication strategy involving awareness, training of taxpayers at a very large scale and from the gross-root level.  Further, taxpayers would also need reasonable time to upgrade their IT and other systems in order to be GST compliant.

It is understandable that some of the above actions can be carried out simultaneously along with the legislative process, but such steps will be fully productive only after there is complete clarity on the GST modalities.

Thus, from a practical standpoint it is impossible to complete all the tasks highlighted above and implement GST by 1 April 2017. The chances of a mid-year implementation are also bleak as it would multiply the transition issues for all the stakeholders and for this reason Government would avoid the same.

In any event, pushing GST implementation beyond 1 April 2017 would mean introduction of reform within two years from the next Union Elections (due in the year 2019), which the Government would like to avoid. In the policy parlance, it is considered prudent to introduce big reforms only in the first two years of the term, as it not only gives the Government enough time to resolve the issues cropping up during the implementation process but is also required by the general public to get accustomed and appreciate the benefits of the reform.

Taking into consideration the above aspects, it is very likely that the Government would want the Constitutional Amendment Bill to go through in its current term (2014-2019), but actually implement the GST in the next term so as to reap maximum benefits from this reform.

By Gajendra Maheshwari, Managing Partner, Reina Legal and Ankur Jain, Partner