Indian parliament's upper house passes landmark tax reform bill

Indian parliament's upper house passes landmark tax reform bill

Businesses have lobbied hard for the tax, with lobby group the Confederation of Indian Industry (CII) estimating the GST will add 1.5 to 2 percentage points to the annual economic growth rate. Photograph: (AFP)

Agencies New Delhi, Delhi, India Aug 3, 2016, 11.00 PM (IST)
India's parliament today passed a landmark tax reform bill that will pave the way for the introduction of a new national sales tax, and create a common market across the country for the first time.

Parliament's upper house, Rajya Sabha, passed the long-awaited Goods and Services Tax (GST) bill unanimously after Prime Minister Narendra Modi's government reached a consensus with opposition parties over the new tax regime. The Constitution (122nd Amendment) Bill, 2014 was approved by the upper house with 203 votes in favour and none against, after a seven-hour debate during which a rare bonhomie was witnessed among the ruling and the opposition parties.

The GST will replace a patchwork of central and state levies on goods and services and is one of the right-wing Bharatiya Janata Party government's biggest reforms since taking power in May 2014. Prime Minister Modi thanked the leaders and members of all the parties in a tweet after the bill received a thumbs up.
   
The battle to introduce the economy-boosting GST has been one of the fiercest of Modi's premiership, with Congress repeatedly blocking the bill for more than a year, before finally agreeing to several amendments.

"It's the biggest tax reform since independence," finance minister Arun Jaitley told the NDTV television channel earlier today. "It integrates India into one economic entity India becomes a big market, there will be a seamless transfer of goods and services across the country."

Investors have billed the GST as a "silver bullet" for India's economy that would supplant multiple federal and state levies, a chaotic structure that inflates costs for businesses.
   
Hailing the passage of the bill as an extremely progressive step, Walmart India today reacted positively.

"Passing of the GST bill today in Rajya Sabha is an extremely progressive step and long awaited one. GST is one of the critical tax reforms which has potential to create one single market in India for goods & services and will boost country's economy significantly," Walmart India president and CEO Krish Iyer said in a statement.

Businesses have lobbied hard for the tax, with lobby group the Confederation of Indian Industry (CII) estimating the GST will add 1.5 to 2 percentage points to the annual economic growth rate.

"It is very much in the category of what one would call a big-bang reform," CII president Naushad Forbes told AFP. "It will be a huge benefit to the ease of doing business, it's a huge potential efficiency gainer. It's a very significant potential contribution to the economy in the longer term," he said.

India's GDP expanded 7.6 per cent in 2015-16, making it the fastest-growing major economy in the world. The actual tax is still some way off, however, with the government targeting April 2017 for its introduction, a date many experts say is overly optimistic.

The bill that cleared the upper house today simply amends the constitution to grant the government new taxation powers. The bill must also be ratified by at least half of India's 29 states, before a specific GST bill can be introduced to enshrine the tax in law.

The main rate of GST is still a hot topic for debate, with experts suggesting it is likely to end up at around 18 per cent. While GST may push up inflation in the short term because the price of some goods will rise, economists say it will boost business activity and deter tax evasion.

About 150 countries worldwide have some form of GST or VAT (Value Added Tax), according to the Organisation for Economic Cooperation and Development.

(Agencies)

STORY HIGHLIGHTS

The passage of the bill was held up for years by political infighting, and its advancement marks a victory for Prime Minister Narendra Modi

  • delete
  • 1/3