GST Bill Taken Up In Rajya Sabha; Most Parties, Except AIADMK, Support

The Rajya Sabha kicked off a debate on a major tax reform on Wednesday (03 August) that lawmakers were expected to back in a vote later on, as Finance Minister Arun Jaitley faced 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 in-fighting, and its passage would 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," Jaitley told lawmakers.

India is already the world's fastest growing large economy, expanding by 7.9 per cent year-on-year in the March quarter. Economists at HSBC forecast the GST would produce a boost of 0.8 percentage points within three to five years.

Yet while the finance minister vowed to roll out the new sales tax as soon as possible, he refrained from committing to a firm date.

The vote on Wednesday involves a key constitutional amendment, which requires a two-thirds majority to pass. That will kick off a legislative marathon in which both the parliament and state assemblies will need to pass further laws setting the rate and scope of the GST.

It's been a long time coming for the Modi government's most ambitious reform. He 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 opposed what it termed as a "flawed" tax.

P. Chidambaram, 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."

Chidambaram said his party supports "idea" of GST as well as the bill, which he noted had been improved after the government held talks with various parties, including his.

"The Congress party was never against the idea of GST.

The country is now ready to embrace the GST," he said, adding his party had opposed the 2014 bill but not the "idea".

"We wanted it (bill) to be more perfect. But there can never be a perfect bill," he said.

Spelling out the problems his party had with the bill, he said Congress wanted a cap of 18 per cent on the tax rate under GST, scrapping of 1 per cent retrogade tax besides setting up of disputes redressal mechanism for resolving issues arising out of tax disputes between states.

"The government was (initially) rather stubborn...I, on behalf of my party, loudly and clearly wanted that the tax should be not more than 18 per cent...Taxation is the exclusive power of Parliament, we can give some leverage to the Executive, but it should remain the domain of Parliament.

"I want an assurance from the Finance Minister that when the GST Bill is brought, it will brought as a financial bill and not as a money bill. This is far too transformational and important legislation that one House of Parliament should just speak on it and the other will vote. We want that both Houses should debate and vote on it," he said. .

He also asked for safeguards to prevent any tinkering in the rate without the approval from both houses of parliament.

The bill was supported by Congress and most of the other parties like Samajwadi Party, JD(U) and Trinamool Congress.

AIADMK, however, opposed the move.

Tax experts say that passing further legislation, training tax collectors, setting up IT systems and preparing companies for the new tax regime makes launching the GST by next April, the start of the next financial year, very challenging.

If all goes well, they say, a July or October 2017 start date looks more probable.

(Reuters / PTI)