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India’s biggest tax reform GST is finally set to become a reality

India’s biggest tax reform is finally set to become a reality with the main opposition Congress indicating its support for the long-pending constitution amendment bill for GST in the Rajya Sabha, following months of backroom bargaining.

Racing against time to roll out a national goods and services tax (GST) from April next year, the government has listed the Constitution (122nd Amendment) bill, 2014, for discussion and approval in the Upper House on Wednesday.

The government has been working overtime to pass the crucial legislation in the ongoing monsoon session of parliament and has been holding intense consultations with the Congress and other regional political parties to reach a consensus.

GST being a constitution amendment bill needs the nod of two-third members. In the 245-member Upper House it needs approval of 163 lawmakers.

The BJP-led National Democratic Alliance (NDA) has 72 MPs in Rajya Sabha, and hence, the support of other political parties is crucial for the passage of GST.

Lok Sabha had already passed the bill in May last year, but once Rajya Sabha passes the amended bill, it will need to be ratified by the Lower House.

The bill will then need to be ratified by at least 15 states in their respective assemblies before the President gives his assent for its enactment.

First proposed by the Congress in 2006, the GST regime seeks to subsume all indirect taxes levied by the Centre and states and create a common market across the country by removing all fiscal barriers. Policy makers and industry analysts expect GST to boost India’s economic growth by up to 2 per cent.

“The GST bill is listed for consideration and passage on Wednesday in Rajya Sabha and we seek support of all political parties. The mood is in favour of its passage,” parliamentary affairs minister Ananth Kumar said.

In a meeting of empowered committee of state finance ministers on July 26 almost all the states had come on board on the key provisions of the constitution amendment bill, signalling its passage in the current session of parliament.

It was agreed at that meeting that the 1 per cent additional levy over and above the central and the state GST would be dropped. Subsequently, the next day, the Union cabinet approved the proposal to do away with the levy and also gave its nod for wordings in the bill for full compensation to states in the event of revenue loss from the new tax regime.

With this one, of the key demands put forward by the Congress was met, raising hope for the bill’s imminent passage.

The other two demands of the Congress were capping the GST rate at 18 per cent in the constitution itself and more say for states in the proposed GST council. As the states in the empowered committee meeting rejected the idea of fixing the threshold for the GST and putting it in the constitution, the Congress was cornered on its demand.

About CA Karishma

I am a Chartered Accountant by profession and an avid teacher. Writing is my hobby and this blog is a platform to share knowledge and interact with prospective Chartered Accountants. I locate my work at the intersection of Chartered accountancy & education. I teach among others, Taxation at Tapasya Academy for CA, one of the premier institute for Chartered Accountancy course in Andhra Pradesh.

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