Published: Fri, August 05, 2016
Economy | By Melissa Porter

Crucial Indian tax bill passes parliament

Touted by many as the next most optimised way to restructure the current taxation system in the country, the decision to introduce country-wide Goods and Services Tax (GST) was finally made in the Rajya Sabha on Wednesday with the passing of the Constitutional Amendment Bill. Now it has to go back to the Lower House to incorporate the amendments approved by the Rajya Sabha.

A finance bill needs to be passed by both houses, while the money bill can be steered in the Lok Sabha alone - where the BJP enjoys a brute majority.

Thanking Congress and other opposition parties for supporting the legislation, he said proceedings in the Upper House demonstrated to the world that this is a great day for Indian democracy and Indian federalism.

Even though the Constitution provides for many subjects over which the Union and the state may make laws (ie, all the subjects mentioned in the Concurrent List), none of these subjects relate to a tax.

"Once GST is rolled out, doing business in India will be easier", he said.

The Bill permits the centre to levy and collect GST in the course of inter-state trade and commerce, called the Integrated Goods and Services Tax (IGST). With every state deciding its own taxes it also encourages local protectionism.

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

Once the bill comes into force it would drastically transform the $2tn (£1.5tn) economy by reducing costs for shipping goods from one state to another. "Overall, I think we had an excellent debate", he told reporters.

Indian industry and manufacturers have hailed the new tax reforms. Economists at HSBC forecast the GST would produce a boost of 0.8 percentage points in India's economic growth within three to five years. In simpler terms, GST stands for one single tax to be imposed on all goods and services taking the place of all sorts of indirect taxes in place as on date. However, there are certain differences in the GST Bill 2014 and the proposed 2016 amendments as certain official amendments were circulated to the 2014 Bill on 1 August 2016. Although the government hopes to implement it by April, experts say it could take time to set up new tax machinery.

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