India parliament set to pass landmark tax reform

Indian Finance Minister Arun Jaitley. PHOTO: NDTV

Indian Finance Minister Arun Jaitley. PHOTO: NDTV

NEW DELHI: Finance Minister Arun Jaitley said India was on the cusp of its biggest tax reform since independence ahead of a vote in parliament later Wednesday on a new national sales tax.

Real estate sector handed tax amnesty

The Goods and Services Tax (GST) will replace a patchwork of central and state levies on goods and services and is one of Prime Minister Narendra Modi’s biggest reforms since taking power in May 2014.

The battle to introduce the economy-boosting GST has been one of the fiercest of Modi’s premiership, with the main opposition Congress party repeatedly blocking the bill, before finally agreeing to several amendments.

“It’s the biggest tax reform since independence,” Jaitley told the NDTV television channel.

“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,” he said.

Yet another budget deficit

Businesses have lobbied hard for the tax, with business lobby 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 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 percent 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 is expected to clear the upper house on Wednesday simply amends the constitution to grant the government new taxation powers.

GST and jurisdictions

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 topic of hot discussion, with experts suggesting it is likely to end up at around 18 percent.

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.

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