GST, National Tax and Huge Reform in Parliament on Monday
December, 19th 2014
There may be just two working days left for this Parliament session, but the government is determined to signal its commitment to its agenda of economic reform and will therefore, on Monday, introduce a bill to create a harmonised Goods and Services Tax (GST).
The bill, which will be brought to the Lok Sabha next week, will be debated in the budget session of Parliament in February. The government aims to bring the tax into effect from April 1, 2016.
The GST provides a major taxation reform by introducing a national sales tax that will replace a myriad of overlapping state duties that deter investment.The cabinet last evening approved a constitutional amendment bill that allows for this.
Since the bill seeks to amend the constitution, it needs to be cleared by a two-third majority of both houses of Parliament. The government will face no problem in the Lok Sabha, where it has huge numbers, but it is in a minority in the Rajya Sabha and will need the opposition's support.
The proposal will then have to be cleared by at least half of the country's 29 state legislatures.
To win over states, Finance Minister Arun Jaitley brokered a compromise on Monday, offering to compensate them for any loss of revenues.
For now, taxes from the sale of alcohol and petroleum will not be subsumed by the GST. States will continue to keep those. But taxes on the sale of tobacco will be covered by the GST.
Sources say that the government is considering using an ordinance or executive order to liberalize the insurance industry by lifting the cap on foreign investment from 26 percent to 49 percent. That's because it is not sure that the proposal will clear the Rajya Sabha. For the same reason, an ordinance on coal reforms that allows the government to auction mines could be re-issued or re-promulgated. Executive orders need to be approved by Parliament within six months.