The Cabinet on Tuesday approved the GST constitution amendment Bill, setting the stage for implementation of the country's most ambitious tax reform.
The government will aim to introduce the bill in the current session of Parliament after law ministry makes some changes.
A constitutional amendment is necessary to give the power of taxation of all services to states for introduction of GST at the state level. The power to levy service taxes now vests only with the Centre.
Finance minister Pranab Mukherjee has said the government will introduce the Constitution amendment bill in the current session of Parliament and work is underway on drafting of a model legislation for the central and state GST.
But implementing GST by April 1, 2012 may be an uphill task as consensus among states is yet to evolve on key issues. Revenue secretary Sunil Mitra has said it may be difficult to implement GST from April 2012 and the date could be pushed to June. The government has missed its deadline of introducing GST in the past.
Mukherjee has sought the industry's help to create consensus on implementing GST and other economic reforms necessary to sustain 9-10% economic growth.
Analysts said the cabinet approval for the Constitution amendment bill was a key step for implementing GST.
"This definitely is most important. Once it is approved by Parliament, it has to be approved by 50% of states. Once that is done, it creates conditions for implementing GST," Rajeev Dimri, leader, indirect taxes at BMR Advisors, said.
The introduction of GST at the central level will not only include more indirect central taxes and integrate goods and service taxes for the purpose of set-off relief, but may also lead to revenue gain for the Centre.
It is expected to widen the dealer base by capturing value addition in the distributive trade and increased compliance, the finance ministry says. Because of the removal of cascading effect, the burden of tax under GST on goods is expected to fall.
The GST will override all indirect taxes such as excise duty and service tax at the federal level and value added tax (VAT) at the state level as well as local taxes, paving the way for creating a common market across the country. Analysts say evidence shows that revenue has risen significantly in countries which adopted GST.