NEW DELHI (REUTERS) - India's government introduced legislation Friday billed as the biggest tax reform since independence, with analysts hailing it as a “game changer” that would cut the cost of doing business and boost economic growth.
The long-awaited goods-and-services tax (GST) would eliminate a slew of levies currently in place to create a single internal market. One of various reforms undertaken by Prime Minister Narendra Modi’s government, the GST would swell public coffers by broadening the tax base, economists say.
Finance Minister Arun Jaitley called the GST the “single biggest tax reform since independence” of the country from Britain more than six decades ago. “We will formally take it (the GST) up in the next session” which begins in February, Jaitley told parliament’s upper house as the bill was introduced in the lower house. “It is like creating internal trade liberalisation,” Jaitley said.
The Bharatiya Janata Party (BJP), which won a crushing election mandate in May under leader Narendra Modi, aims to have the reform take effect from April 1, 2016. Jaitley said his party had succeeded in getting India’s 29 states to agree to the GST where the previous left-leaning Congress government failed. He described the indirect tax as a “win-win situation” for both levels of government. Jaitley reassured India’s states the government would give “a constitutional assurance” in terms of compensating them for any loss of revenue from the tax change.
The GST would end India’s patchwork of taxes under which each state has used its powers under the constitution to tax different commodities at different rates, levelling the competitive playing field.
But creating a uniform tax structure is one of the most complicated reforms to achieve. Enacting the GST requires a constitutional amendment involving consent of a majority of India’s states – some of which had objected to ceding their right to levy taxes – as well as approval by a two-thirds majority in both houses. While the BJP holds a commanding lead in the lower house, it is still in a minority in the upper house.
Jaitley said he did not expect legislators to hold back the GST now that he had the states on board. Modi had opposed the indirect tax during his dozen years in power as chief minister of western Gujarat state. But mindful of the need to close India’s budget deficit and bolster a struggling economy, Modi’s national government has put its weight behind the plan.