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Goods & Services Tax, insurance next on Modi Governments reform agenda
October, 20th 2014

After fuelling big-ticket reforms with diesel price deregulation and new pricing for domestically produced natural gas, the next wave of reforms by the Narendra Modi Government could pave the way for the Goods & Services Tax (GST), higher foreign direct investment (FDI) in insurance and pension, and a new coal block allocation policy in the next three months.

A senior Finance Ministry official said the ground work for introducing the redrafted Constitutional Amendment Bill for GST is ready and as soon as Finance Minister Arun Jaitley approves it, the process for getting Cabinet approval will start. The Bill will then be introduced in the winter session of Parliament in November. Once Parliament gives its nod, it will require approval from at least half of the State Assemblies before the Act is implemented. An amendment in the Constitution will allow States to tax services and the Centre to collect taxes on goods from retail establishments.

If everything goes according to the plan, GST could be introduced from April 1, 2016. GST aims to replace multiple State and Central levies, such as excise, service tax, value-added tax and entry tax and create a national market, while lifting GDP by 1-2 percentage points.

“The Empowered Committee of State Finance Ministers is likely to meet next month to consider the final draft. Based on the deliberations, the Centre will try to address most of the concerns of States,” the official said.

The Centre has already indicated its intention to provide ?12,000-13,000 crore toward compensation for phasing out Central sales taxes. The Centre and States have agreed on a compensation of ?34,000 crore to be paid over the next three years.

However, States have issues such as bringing petroleum and alcohol within GST. The Centre plans to keep petroleum within the ambit of GST with ‘nil’ rate, which will allow the Centre and States to impose duties as they do currently.

The plan is to keep alcohol out of GST, while tobacco is likely to be brought under the new tax framework. The Centre has already accepted States’ demand to drop the provision related to the dispute resolution authority.

FDI in insurance
The Centre is expecting a report from the Select Committee of Rajya Sabha at the end of November. Based on the report, the Government intends to get the pending insurance Bill passed in the Winter Session of Parliament. The Bill aims to raise the FDI limit in insurance to 49 per cent from the current 26 per cent.

It also facilitates higher FDI in the pension sector, as the limit here is subjected to that of insurance sector. The Government expects the proposed FDI cap hike in insurance to result in an inflow of $5 billion over the next five years.

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