Implementation of tax reforms unlikely before 2016

It was believed the Direct Taxes Code (DTC), the law to replace the archaic Income-Tax Act of 1961, was set to be rolled out from April 1, 2014 — three years later than originally planned. But, if finance ministry officials’ view is any indication, the soonest the law can actually be enforced is 2016-17.

And, implementing the Goods & Services Tax (GST), which seeks to rationalise indirect taxation by subsuming many central and state-level taxes — originally scheduled for an April 1, 2010 rollout — seems even trickier.

The wait for these tax reforms is set to get longer with dissolution of the 15th Lok Sabha, as the country goes to polls next year.

The government has already lost its last chance to table the Bills and get those passed in Parliament’s winter session. This, according to officials, will lead to a delay of not one but at least a couple of years.

DTC, modified several times with change of guard at the finance ministry, cannot be implemented immediately after it becomes law, officials say.

The taxpayers, as well as the tax administration, will need to be given some transition time to adjust.

“If the new government accepts the current version of the Bill and gets it cleared in Parliament in 2014-15, the earliest the legislation can be introduced is April 2016. At least a year will be needed to frame the rules alone,” said a finance ministry official who did not wish to be named.

This, however, is the best-case scenario. If the new government or the new finance minister decides to make changes to the Bill — likely if the incumbent United Progressive Alliance (UPA) government, led by the Congress party, doesn’t come back to power— the rollout could be further delayed.

The next government will also have to repeat the exercise of tabling the Bill in Parliament for a standing committee’s consideration.

The rollout of GST will be even more difficult because — unlike DTC, for which only Parliament’ approval is required — for the indirect tax reform, both the Centre and states will have to be on the same page.

Negotiations between the two sides, which had agreed on some contentious issues after years of discussions, again appeared going off track last month with collapse of talks at the Shillong meet.

Among GST’s greatest opponents have been the states ruled by the Bharatiya Janata Party (BJP) — Madhya Pradesh and Gujarat, in particular. If BJP and its allies come to power after the coming general elections, there could, however, be a turning of tables for GST.

The reform may get a new lease of life, with these states softening their stance. But, then, a more vocal opposition from the Congress-ruled states cannot be ruled out.

The indirect tax reform, too, cannot be implemented before 2016, say officials. That is because a Constitution Amendment Bill, to give the Centre the power to tax goods beyond the factory gate and empower states to collect service tax, will have to be passed with a two-thirds majority in Parliament — a difficult proposition if the ruling party or alliance does not have good numbers in both Houses.

And, that’s not all: Once Parliament has cleared the Bill, it will have to be ratified by legislatures of at least half the states. After that, the GST Bill have to be tabled in Parliament and states’ respective Assemblies. The whole process is likely to take at least a year after a new government is in place.  And, the wait will get even longer if a consensus continues to elude states and the Centre.

Still in the works

Direct Taxes Code

Aug 2009 Draft legislation and discussion paper issued for public comments

Jun 2010 Revised discussion paper brought in

Aug 2010 The DTC Bill, 2010, introduced in Parliament; said to be implemented from April 1, 2012 — a year later than
originally planned

Mar 2012 Standing committee tables its report on DTC in Parliament; implementation postponed to April1, 2013

Aug 2012 P Chidambaram takes over as finance minister; DTC Bill is to be reworked

Aug 2013 Cabinet defers Bill over the issue of super-rich tax

Goods & Services Tax

Feb 2005 Finance Minister P Chidambaram proposes national VAT, or even better goods & services tax (GST) in Budget 2005-06

Feb 2006 In Budget 2006-07, Chidambaram proposes GST to be introduced from April 1, 2010

Jan 2010 Empowered committee of state FMs says it can’t implement GST from