NEW DELHI: India’s upper house of parliament passed a landmark tax reform bill on Wednesday that will pave the way for the introduction of a new national sales tax, creating a common market across the country for the first time.
After hours of debate, lawmakers unanimously voted in favour of introducing the long-awaited Goods and Services Tax (GST) after Prime Minister Narendra Modi’s government reached a consensus with the Congress party and other opposition party members.
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.
Modi described the bill’s passage as a “truly historic occasion” and thanked members of all parties for their support.
“We will continue to work with all parties & states to introduce a system that benefits all Indians & promotes a vibrant & unified national market,” Modi tweeted after the bill received the 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 Wednesday. “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.”
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 said. “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.”
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 on Wednesday 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.
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.