(MENAFN- The Peninsula) The government yesterday introduced legislation 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 replace 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 big election mandate in May under 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 a 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.
The previous United Progressive Alliance government had in 2011 introduced a Constitution Amendment Bill in the Lok Sabha towards the introduction of the GST. States sought a five-year compensation package and asked for its inclusion in the bill.
Jaitley told the house that states will receive Rs110bn this fiscal towards partial compensation of the losses suffered by them for reduction in central sales tax (CST). While the CST is levied by the central government on inter-state movement of goods and collected by states, the issue of compensation arose because the central government cut the CST from four percent to two percent in phases, after state-level VAT was introduced on April 1, 2005.
Full implementation of GST could lift India's gross domestic product growth by 0.9-1.7 percentage points, according to a study by the National Council of Applied Economic Research.
Commenting on the development, Sachin Menon, chief operating officer of KPMG India, said: "This is a moment in history, a turning point in India's history of fiscal reforms and all the architects who worked for bringing in GST since 2006 would remembered for their contribution to the nation."
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