How Indian States Can Implement The GST Effectively

Rupak DeChowdhuri / Reuters


By: Mukul G Asher – Professorial Fellow, Lee Kuan Yew School of Public Policy, National University of Singapore

India, a federal country with 29 states and seven union territories and a population of about 1.3 billion, has embarked on an ambitious reform of its domestic taxes on goods and services. This reform is appropriately called the GST (Goods and Services Tax).

It is dual sales tax, levied by the Union Government (CGST), the states and union territories (SGST), and on inter- state sales (IGST). There will be a single GST rate for all states (instead of each state currently defining its own sales tax rate and base). For inter-state transactions, IGST will be levied at the combined union and state GST rates, with revenue shared among the different parties. The current origin-based sales tax (i.e. where production takes place) is therefore set to be replaced by a more-common internationally adopted destination basis. This requires levying of GST on all international transactions in merchandise and services, with appropriate input credit mechanisms

Implementation of GST is likely to be used as an excuse to initially raise prices of basic commodities. State governments should undertake complementary steps and use their persuasive powers with traders…

India’s Customs and Excise Tax Department has been entrusted with the responsibility of administering the GST. Internationally, income tax agencies more commonly administer the GST (or the Value-Added Tax, VAT). Both the Income Tax and the Customs and Excise Tax Departments will need to liaise closely, including in the synchronization of their IT and hardware, for effective GST implementation.

The GST process

The 122nd amendment to India’s Constitution has been unanimously passed by both Houses of the Parliament, a rare occurrence for such a far reaching landmark tax reform. This amendment permits, for the first time since Independence in 1947, both the union government and the states to levy a sales tax on both goods and services, substantially widening the tax base, particularly those of the states. The amendment received President’s assent on 8 September, 2016.

The GST Council is to be formed shortly, and will comprise finance ministers of the union government and all the states. It will co-operatively decide on the GST rate structure and base, and on the transitioning provisions. It will also decide which of the current union and state taxes (such as excise and service tax of the Union government, and sales tax, entry tax and others of the state governments) will be subsumed under the GST. To pass a proposal, 75% of the votes will be needed. The union government has one-third of the vote, while the state governments combined have two-thirds of the votes. It will be a continuing body responsible for monitoring and refining the GST as the need arises.

In the winter session of Parliament beginning in November 2016, the GST Bill (extensive consultations are under way nationally to refine the existing draft) will be introduced. The nationwide implementation of GST is planned from 1 April, 2017, an ambitious but achievable target.

Each state should actively participate in the GST council to shape its recommendations, and remain updated (and contribute) on the broader national thinking on GST.

The union government has pledged that during the first five years of implementation, any shortfall in sales tax revenue will be compensated. This permits states to plan adjustment to GST, but complicates rate structure setting and generation of fiscal space for the union government.

Suggestion to states

The following five areas merit urgent consideration of policymakers for effective implementation of GST in the states.

  1. Establish a GST taskforce: The members of the GST taskforce should have representation from those with relevant expertise (such as chartered accountants, an information technology specialist, industry bodies, including Micro, Small and Medium Enterprises (MSME) representatives and a fiscal economist. The taskforce should focus on:

    • Overseeing the compilation of a registry of all GST taxpayers, with a view to ensuring that as many as possible these taxpayers are filing their tax returns. This should be undertaken on the basis of empirically quantifiable numbers. The target proportion of potential GST taxpayers who actually file returns should be benchmarked; and so should the GST revenue collected as a proportion of the potential GST revenue base.
    • Monitoring compliance costs of GST, particularly for the MSMEs. As these costs vary inversely with turnover, preserving MSME profitability and competitiveness requires specific attention to their GST compliance costs.
    • Ensuring that the GST input tax credit and refund processes function as intended.
    • A systematic process of dialogue with the stakeholders for smoothening GST implementation.
  2. Prepare regional language GST literature: Prepare accurate and practically useful translations of laws, regulations, GST Council decisions, etc. in regional languages. This is essential as GST is to be uniform across all states, but language proficiencies in English and Hindi (most commonly used languages in the GST literature) vary greatly across states. Therefore, a strategy for effective communication with all stakeholders concerning the GST is essential for uniformity in sales tax, and for realization of common internal markets.
  3. Complementary measures: Implementation of GST is likely to be used as an excuse to initially raise prices of basic commodities. State governments should undertake complementary steps (such as ensuring sufficient supply of basic goods and services, particularly food items and medicines), and use their persuasive powers with traders to cooperate for a smooth GST implementation.
  4. Participate in GST council: Each state should actively participate in the GST council to shape its recommendations, and remain updated (and contribute) on the broader national thinking on GST.
  5. Use GSTN infrastructure and expertise: The GSTN (The Goods and Services Network), set up in March 2013, is a joint-venture between union and state governments, and public and private sector financial institutions. It functions as a common pass-through portal for GST taxpayers. It can potentially provide policy relevant avenues for data mining and analytics. States could consider obtaining additional services from the GSTN to facilitate the realization of GST revenue potential.

The GST reform is an ambitious and complex initiative. India’s past record of such, e.g. insurance and pension sector reforms, suggests that optimism about its likelihood of success is justified.

Couple Celebrates First Anniversary With Indian-Style Wedding In Front Of Taj Mahal

The Proposal of Refining India’s Budget Process is a Welcome Step


An important avenue for advancing public policy reforms is to locate or to discern relatively small measures which could potentially have disproportionately large leverage, i.e. positive impact on desired outcomes, and then implement them effectively, using a system perspective.

Recent proposals to refine some of the elements of India’s traditional budget process present a good illustration of the above avenue, as explained below

They may be grouped as follows:

Date of Budget Presentation:

The first proposal is to advance the date of the Union government’s Budget by One month, i.e. from end February to end January, starting from the 2017-18 Budget. The budget session of the Parliament is proposed to be convened on January 24, 2017.

This will require Budget preparations to begin earlier by at least four weeks; preferably immediately after the Independence Day, and completing all budget formalities can thus by expected to be completed before the commencement of the financial or fiscal year on April 1.

Until the 2016-17 Budget, the presentation of the Budget has been scheduled around end-February. This has led to final Parliamentary approval not coming till mid-May, or about six weeks after the start of the fiscal year. This creates uncertainty about fund flows, expenditure allocations, priorities and disbursements which occur much later in the fiscal year, and also provides less time to effectively plan procurement of goods, services, and assets.This, thus, constrains smoother conduct of expenditure flows and has hampered effective expenditure management throughout the fiscal year.

Better expenditure management in India has the potential to achieve desired public policy outputs and outcomes from a given level of expenditure. It could also help reduce wastage in delivery of government program benefits, an area of increasing priority of the current government.

This priority is being driven by fiscal stringency, rising national ambitions, and growing expectations of improved quality of public services and amenities. In 2014-15, combined expenditure of Union and State government were equivalent 27 % of GDP (, but there is justifiable widespread perception that commensurate value is not being generated by the public sector.

Advancing the budget Presentation date by one month thus can assist in improving Union Government’s public financial management.

It is strongly suggested that the States also similarly advance their respective budget presentation data, and regard it as a small but significant step involving integrated set of measures designed to improve their public financial management.

Merging Railway Budget with the General Budget:

Indian Railways (IR) plays a vital role in India’s overall transport network for freights and for the passengers, connecting all parts of India. In 2015-16, it carried 8.1 billion passengers and transported 1.1 billion tons of freight, 1/3 generated revenue of INR 1.7 trillion (equivalent to 1.3 percent of GDP); and employed about 1.4 million persons directly (equivalent to 0.26 percent of India’s labor force of 540 million. (

This proposal has been strongly advocated by the current Minister for Railways. Under his leadership, IR is increasingly becoming a professional organization, with much greater focus on delivering citizen-centric services, and more effectively utilizing resources entrusted to IR

After nearly a century of existing essentially as a political organization, the time has come to transform IR as a professional organization, and to integrate IR into India’s overall transport system. However, this requires more than simply merging the IR budget with the General Budget

The Railway Board will need to be recognized for better organizational planning and leadership. Measures to recruit professional staff which can help take advantage of new technologies, more sophisticated pricing and product mix and possibilities of complex varied partnerships category and organizational governance structures, particularly to leverage IR’s vast assets (including human assets and land, air-space, and below-ground property rights)

These steps are essential if India is to create transport infrastructure necessary to meet the demand generated by its growing, increasingly mobile, and globally integrated economy and society.

The aim should be to turn IR into professional transparent organization delivering value for money to stakeholders, with high degree of accountability.

Discontinuing Plan-Non-Plan Expenditure Classification:

Starting with the 2017-18 Union Budget, classifying government expenditure into planned and non-planned expenditures will be discontinued

This is a logical step as NITI (National Institution for Transforming India) Aayog was established in place of unlamented Planning Commission on January 2015.

This step can be expected to assist in better expenditure management as over the years, a tendency had developed to regard expenditure under ‘Plan’ category as being superior in generating development than ‘non-plan’ expenditure. Such thinking (not always conscious) gave support to the national tendency to give insufficient weight to maintaining and renovating the existing assets. The ‘operations and maintenance’ category, essential for obtaining quality services over the entire life of the assets has generally not received sufficient emphasis

The state governments are likely to follow the lead of the Union government in this regard.

With the above step only the ‘Revenue (or Current)’ and ‘Capital Expenditure’ classification which will be used

The need to not regard ‘Capital’ expenditure as being more conducive to development than ‘Current’ expenditure will, however, remain. Restraint and continued monitoring will be needed to ensure that these categories are used according to globally accepted practices.

Encouraging Participation by States in PFMS:

The Controller General of Accounts Department (CGA), to Expenditure, Ministry of Finance has been entrusted with the responsibility for managing the PRMS (Public Financial Management System) as a single platform for payment, accounting and reconciliation of government transactions for central government schemes by integrating existing stand-alone systems. The completion date for complying with the PFMS is set at March 31, 2017. It is however not mandatory for the States to join, but it is in their interest to do so

The PFMS is to be integrated with State treasuries, and State implementing agencies are to use PFMS. The effectiveness of PFMS thus is tied to the functioning of ‘Cooperative Federalism’.

A degree of economic literacy and political maturity by all stakeholders at the Union and State government levels are essential if the PFMS initiative in to lead to improved outcomes from the Central government’s schemes.

The above do not exhaust the possibilities for using seemingly small measures to obtain disproportionately positive outcome, even in budgetary processes. Fuller utilization of this avenue in public financial management, and in other sector sectors by public organizations has the potential to improve overall performance of the government sector.

Review and comments on draft trafficking of persons bill, 2016 Ministry of women and child development

Submitted by: Global Village Foundation, New Delhi

The Global Village Foundation (GVF) is a research institute working primarily and engaged in social and economic research and assists States as well as Centre in developing, framing and assessing, the policies. Its mission and driving force is to achieve an equitable society sustained by holistic and responsive development.

We, at GVF have been observing the developments with regard to tackling Trafficking and related issues and challenges in India and the consequent social discourse, judicial recourse through PILs and the consequent, Higher judiciary’s guidelines for the Ministry for formulating a Protocol for victim’s protection.


How do Residents of Delhi view the Threat of Pollution?

Author: Amit Soni

This study was undertaken in the winter of 2015 to assess selected environmental conditions in the National Capital Region (NCR). The study was motivated by the public anxiety with the high level of smog during winters causing acute respiratory problems in the NCR. The degradation of another natural resource in NCR, river Yamuna, has been such that it has become dangerous for human consumption. The residents of NCR have also been subjected to mass level destruction of green cover during the Commonwealth games in 2010 organized by the then Congress party led government[i]. The aim of this study is modest. It is to conduct a survey to systematically understand the dynamics of environmental concerns of citizens of NCR and assess what specifically they are willing to contribute in monetary terms for the protection of natural resources in their immediate areas. In general, it is imperative to know the economic worth of environmental resources so that we can have a true measure of economic growth by subtracting the depreciation of natural resource if the natural resource gets affected in the development process. The value of these resources can only be computed indirectly through the techniques like CVM as it cannot be known through market mechanism. Read More…