The long-awaited goods-and-services tax bill, or GST Bill, aimed at creating a single sales tax for goods and services across the country, was introduced in the Lok Sabha (the lower house of parliament) on December 19, by the Finance Minister, Arun Jaitley.
While India is one nation of 1.24 billion people, it isn’t functionally one market. When a business sells across state lines, it encounters levies including border taxes, local sales taxes, a central service tax, federal excise, a central sales tax and other duties that often vary by state and product.
“It is expected that introduction of GST will foster a common and seamless Indian market and contribute significantly to the growth of the economy,” Jaitley said. The Federal government has committed to compensating states fully for the next three years on account of any revenue loss. The compensation would be partial in the following two years.
“This is by far the biggest tax reform in the country,” Devendra Kumar Pant, chief economist at India Ratings & Research, the local unit of Fitch Ratings. “The implementation will reduce transaction costs and spur investments,” he added. KPMG opined, “The speed with which the government has introduced the bill in the parliament shows the seriousness attached with this important reform.”
Since the tax requires a constitutional amendment to be enacted, it must be approved by 15 of India’s 29 states as well as both houses of parliament.
The GST Bill, which will bring the “single biggest tax reform since Independence”, will be considered for passing in the budget session of parliament beginning February 2015, the finance minister said.