Political gridlock holds up tax reform

The Goods and Services Tax (GST) seeks to turn India into a common market, harmonising a slew of State and Central levies into a national sales tax. Finance Minister Arun Jaitley calls it the biggest reform since independence in 1947 that could add up to two percentage points to overall economic growth

New Delhi: Parliament is unlikely to approve a landmark tax shakeup in its current sitting, a new setback for Prime Minister Narendra Modi's reform agenda that makes it harder to meet a deadline to launch the new levy by next April.

Failure to pass the bill for a nationwide Goods and Services Tax (GST) in the "monsoon" session will further erode investor confidence, already hurt by the slower-than-expected progress on economic transformation since Modi took office a year ago.

The opposition Congress party has disrupted the Rajya Sabha every day of the current session, which ends on August 13, in protest at alleged corruption linked to the ruling Bharatiya Janata Party.

Senior members said that in its present form the party will not support the GST bill, which is a constitutional amendment and requires a two-thirds majority to become law. In the Rajya Sabha, Congress and allies control more than a third of votes.

The Cabinet on Wednesday approved a minor amendment to the bill suggested by a select committee but did not address Congress' main issue - a 1 per cent additional levy that businesses warn undermines the spirit of the tax.

"If the government wants Congress support for the GST it should accommodate our suggestions," Anand Sharma, Congress' deputy leader in the Rajya Sabha told Reuters. His sentiments were echoed by Congress veteran Mani Shankar Aiyar, who sat on the select committee.

According to bankersadda.com, the GST is an indirect tax that will lead to the abolition of all other taxes such as, central sales tax, state-level sales tax, excise duty, service tax, and value-added tax (VAT). Both the state and the central governments will impose GST on almost all goods and services produced in India or imported into the country. Exports will not be subject to GST.

Direct taxes, such as income tax, corporate tax and capital gains tax will not be affected. It will simplify India's tax structure, broaden the tax base, and create a common market across states, stated the website.

The GST seeks to turn India into a common market, harmonising a slew of state and central levies into a national sales tax. Finance MinisterArun Jaitley calls it the biggest reform since independence in 1947 that could add up to two percentage points to overall economic growth.

Parliament's approval will set in motion steps towards a rollout of the new tax but several more hoops must be passed before it can be implemented. Officials say it will take at least six months for India to be ready for its formal launch.

"Any further delay will make it be very tough to meet the April 1 deadline," said Rashmi Verma, a senior official in the finance ministry's revenue department. "We can still meet the deadline, but it will be a very tough ask."

Months of parliamentary opposition forced Modi to focus on the GST in this session, scaling back earlier ambitions to make progress on land and labour reforms before August 13. On Thursday, Jaitley implored Congress to help pass the tax bill. "These kinds of disruptions hurt the economy," he said.

By Manoj Kumar & Rajesh Kumar Singh