India's plans to rationalise state and federal indirect taxes into a harmonised goods and service tax (GST) took a step closer to reality after New Delhi struck a deal with recalcitrant states, two government sources told Reuters.
Finance Minister Arun Jaitley brokered a compromise on Monday evening that would pave the way for a key constitutional amendment to be tabled in the current parliamentary session that runs to December 23.
"Developments have been positive," said one of the finance ministry officials who attended the meeting. "Everything will be clear in couple of days."
Investors and manufacturers have long coveted the GST as a game-changer that would simplify taxes while broadening the tax base, adding as much as 2 percentage points to the size of Asia's third-largest economy.
However, the measure has been held up for years with some of India's 29 states reluctant to give their assent for fear of revenue losses. Even after Monday's compromise, the tax is not likely to take effect until April 2016.
In critical concession, Jaitley offered to compensate the states for any loss of revenues following the implementation of the GST, the sources said.