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Indian lawmakers pave way for landmark tax reform
August 4, 2016, 5:27 am

When implemented the GST will make the movement of goods cheaper and seamless across a market holding over a billion people [Xinhua]

When implemented the GST will make the movement of goods cheaper and seamless across a market holding over a billion people [Xinhua]

A decade after it was first proposed, the upper house of the Indian parliament almost unanimously backed the creation of a unified national sales tax that would make it easier to do business in the country.

Late on Wednesday night, Indian lawmakers in the upper house of the parliament debated the goods-and-services tax, or GST, India’s most ambitious economic reform since the 1990s.

The tax measure has become the 122nd amendment to India’s constitution.

The new measure would replace 11 state and central levies into a national sales tax, reducing business transaction costs and creating a single market.

“It would herald one market-one nation, a way to transforming India,” Finance Minister Arun Jaitley said. Jaitley has claimed the GST will add 1-2 per cent to the GDP growth rate of the country.

Members of the ruling regional party in the southern Indian state of Tamil Nadu, however, did not back the bill calling it a threat to India’s federal governance structure. The state fears losing tax revenue when the GST is rolled out.

The Indian states would need to approve the bill in their respective assemblies.

A government-appointed panel has suggested a standard GST rate of 17-18 per cent but Indian states want a higher level.

Earlier, Prime Minister Narendra Modi’s administration met key opposition demands about the provisions of the bill, including scrapping an additional 1 per cent levy on goods shipped out of producing states.

The Indian parliament must pass at least another bill to implement the tax.

The main opposition Congress party had first proposed the GST in 2006 which was then opposed by the now ruling Bharatiya Janata Party.

In the Rajya Sabha (upper house of parliament) on Wednesday, former Finance Minister Palaniappan Chidambaram warned of the risk of “creeping taxation” and urged capping the GST rate by law at 18 per cent to ensure it is “non-inflationary, acceptable to public and an efficient way of taxing without tax evasion”.

The GST would be launched sometime in the latter half of 2017.

 

TBP and Agencies