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Rajya Sabha Passes Goods And Services Tax Bill

The Rajya Sabha passed a key constitutional enabling amendment on Wednesday, paving the way for a nationwide Goods and Services Tax that seeks to transform the country into a common market

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The Rajya Sabha passed a key constitutional enabling amendment on Wednesday (03 August), paving the way for a nationwide Goods and Services Tax (GST) that seeks to transform the country into a common market.

The passage of the bill was held up for years by political infighting, and its advancement marks a victory for Prime Minister Narendra Modi as he eyes an economic boost for Asia's third-largest economy.

Investors have billed the GST as a "silver bullet" for India's economy that would supplant multiple federal and state levies - a chaotic structure that inflates costs for businesses.

The Constitution (122nd Amendment) Bill, 2014 was approved by the Upper House with 203 votes in favour and none against, after a seven-hour debate during which a rare bonhomie was witnessed among the ruling and the opposition parties.

Six official amendments, including scrapping of one per cent additional tax, moved by the government were approved with cent per cent votes.

The bill was passed by the Lok Sabha earlier. It will now go back to the Lower House to incorporate the amendments approved by the Rajya Sabha. The bill will also have to be approved by 50 per cent of all the state assemblies.

AIADMK was the only party to oppose the measure and its members staged a walkout from the House to register their unhappiness over the bill which lays the ground for rollout of uniform Goods and Services Tax (GST) regime that will subsume all indirect taxes including central excise duty and state VAT/sales tax.

The easy passage was facilitated after the main opposition party Congress, which had been stalling the measure for over two years, came on board after the government made about six changes in the bill, including scrapping of 1 per cent manufacturing tax and incorporate clearer provisions for compensating states for revenue loss for five years.

Replying to the debate during which most parties pressed for a Constitutional cap on GST tax rate at 18 per cent, Finance Minister Arun Jaitley said the guiding principle would be to keep the "rates as low as possible, certainly lower than what it is today."

Efficient Taxation System
The Goods and Services Tax (GST) regime will weed out black money and usher in an efficient taxation system, but the April 2017 rollout deadline appears to be challenging, experts said.

"Manufacturing will get more competitive due to the emergence of a national market as against the present fragmented one. The low tax to GDP ratio of the country will go up, helping the government to adhere to fiscal discipline and keep inflation in check. It will improve productivity and transparency," Hinduja Group Chairman Ashok P Hinduja said.

The passage of the GST Constitutional Amendment Bill is a "milestone in the history of India's economic reforms" and makes the country competitive, especially in manufacturing, in the global market, said Sachin Menon, Partner and Head, Indirect Tax, KPMG in India.

The April 1, 2017, rollout deadline for the new indirect tax regime looks tough but both the states and Centre are ready in terms of preparedness, experts said.

"In terms of the affirmation and righteous intent on GST to be implemented in the country, possibility of its implementation from April 1, 2017 would be arduous, if not impossible," said Nangia & Co Managing Partner Rakesh Nangia.

According to PwC (India) Partner, Indirect Tax, Anita Rastogi, both the Centre and states are on the right path for GST implementation with broad modalities in place.

"Technically, April 2017 can happen. It looks tough but not impossible. Implementing from June or July would be easier as GST is a transaction tax," she said.