New Delhi: The lower house of parliament passed a bill on Wednesday that seeks to transform India into a common market, bringing multiple state and central levies into a single national goods and services tax, which is expected to boost manufacturing and reduce corruption.
The upper house of parliament would now have to pass the constitution amendment bill, after which more than a half of India’s 29 states must approve it before the central and state governments would get equal powers to tax goods and services.
“The whole country, which is one-sixth of world’s population, would become a single market and therefore it would give a necessary fillip as far as the trade is concerned,” Finance Minister Arun Jaitley told lawmakers.
On Tuesday, the Biju Janata Dal (BJD) on Tuesday joined the Trinamool Congress in dropping its demand that the Bill be referred to a parliamentary standing committee on finance, which cleared the way for it to be tabled in the Rajya Sabha.
Corporations have supported the move to make taxation simpler. If it clears the Rajya Sabha, where the ruling BJP is in a minority, there is still some way to go before GST can be implemented on the ground. “There is a lot of work which needs to be done in terms of preparation for the government such as appointment of a GST council, draft legislation, GSTN IT infrastructure, overall change management, etc. However, it will bring a lot of positivity around GST implementation in India. Of course, for the industry it means a lot of internal preparation is required within 11 months of time,” said Pratik Jain, Partner, Indirect Tax, KPMG in a statement to HuffPost.
Here are seven things you should know about the bill:
1. Passing the bill includes an amendment to the constitution. That means it needs to be cleared by two-third majority in both houses of parliament. The BJP’s overwhelming majority in the Lok Sabha means that hurdle is easy to clear, but it might run into opposition in the Rajya Sabha where the BJP is in a minority. Modi will need to reach out to opposition members to get their vote else he won’t have the numbers. In addition, at least half of the state governments need to pass the bill. That is why the states’ support is crucial.
2. If the bill clears the Rajya Sabha, it will be the country’s biggest tax reform in years and also indicate that the Modi government has the ability to get difficult legislation passed. That might also stem the waning confidence among businesses that feel Modi has been unexpectedly slow on reforms.
3. To make sure the GST is implemented across India, state and central governments will need to build necessary infrastructure – such as fully computerised commercial tax departments and a unified information technology system – to monitor and collect the new tax. If the bill passes both houses, it will still take another year if not more for the required infrastructure to be in place. That’s why Jaitley has set a target of April 2016 for it to come into effect.
4. Work on the infrastructure upgrades began two years ago, but not all states were on board fearing revenue losses and loss of discretionary fiscal authority. For example, Maharashtra, earns more than 13,000 crore annually from octroi, and Haryana earns more than 2,000 crore from purchase tax. These and other states will lose revenue from such levies under GST and have demanded compensation from the central government.
5. Finance Minister Jaitley reached out to all states to get their support before the bill was cleared. He offered to compensate the states for any loss of revenues for first five years following the implementation of GST. States will receive Rs.11,000 crore this fiscal towards partial compensation of the losses suffered by them.
6. The existing, heavily bureaucratic structure of taxes levied by the central and state governments such as excise duty, octroi, central sales tax, and value-added tax will be replaced by a single GST structure. Businesses will find it much easier to operate and expand. Implementation of GST could boost economic growth by 1 to 2 percentage points, according to estimates by the Confederation of Indian Industry.
7. E-commerce firms have run into issues with regulatory authorities, such as Amazon’s case in Karnataka. The GST is expected to plug gaps in tax laws and resolve such problems.
