NEW DELHI • India's Upper House of Parliament kicks off a debate on a major tax reform that lawmakers are expected to back in a vote, as Finance Minister Arun Jaitley faces a call from the opposition not to overtax businesses and consumers.
The proposed goods and services tax (GST) has been held up for years by political infighting, and its passage will mark a victory for Prime Minister Narendra Modi as he eyes an economic boost for Asia's third-largest economy.
"GST is one of the most significant tax reforms in the history of India," Mr Jaitley told lawmakers yesterday.
India is already the world's fastest-growing large economy, expanding by 7.9 per cent year on year in the first quarter.
Economists at HSBC expect the GST to produce a boost of 0.8 percentage point within the next three to five years.
Yet, while Mr Jaitley vowed to roll out the new sales tax as soon as possible, he refrained from committing to a firm date.
The vote involves a key constitutional amendment, which requires a two-thirds majority to pass. That will kick off a legislative marathon in which both the federal and state Parliaments will need to pass further laws setting the rate and scope of the GST.
It has been a long time coming for the Modi government's most ambitious reform.
Mr Modi had wanted the GST to come into effect this April and hoped to reap its economic dividends in time for his expected re-election bid in 2019.
Although the measure enjoyed broad political support, its passage was blocked by differences over its design, now riddled with compromises that risk diluting its impact.
The two-year-old deadlock was broken only after the government offered concessions to the opposition Congress party, which originally proposed the GST while in power but has now opposed what it termed as a "flawed" tax.
Mr P. Chidambaram, Mr Jaitley's predecessor and a senior Congress leader, blamed the government for the deadlock.
"It could have been resolved in five minutes," he said. "But the government was rather stubborn."
Mr Chidambaram warned of the risk of "creeping taxation" and urged capping the GST rate by law at 18 per cent to ensure that it is "non-inflationary, acceptable to public and an efficient way of taxing without tax evasion".
He also asked for safeguards to prevent any tinkering in the rate without the approval from both Houses of Parliament.
Tax experts said that passing further legislation, training tax collectors, setting up IT systems and preparing companies for the new tax regime make launching the GST by next April, the start of the next financial year, very challenging.
If all goes well, they said, a July or October 2017 start date looks more probable.