New Delhi: Prime Minister Narendra Modi today described a national sales tax being cleared by the parliament as a major step "that will deliver us from tax terrorism."
The national Goods and Services Tax or GST will be approved today by the Lok Sabha where the government has a huge lead. It was sanctioned unanimously on Friday by the members of the Rajya Sabha, where the government is in a minority and has struggled to win the opposition's support on major legislation.
"GST means a Great Step Taken by India, a Great Step of Transformation, Great Step towards Transparency," said the PM, flexing his practise of alliteration.
Mr Modi thanked all parties for their cooperation in enabling what has been described as his biggest victory since election. The GST replaces a patchwork of central and state levies with a national tax, making trade easier and unifying India into a common marketplace.
Finance Minister Arun Jaitley has said the GST, when implemented, could add upto two percentage points to economic growth. While some goods like electronics and two-wheelers are expected to become cheaper, services - like eating out or air travel - will become more expensive.
Mr Jaitley has said he remains committed to introducing the GST on April 1, a deadline that requires non-stop action. Because the constitution is being amended to give the government new taxation powers, more than half of India's 29 states must approve of the change. The Finance Minister wants to accomplish that within a month.
After that, a GST Council will be formed with Mr Jaitley and representatives of all state governments. Together, they must decide on the recommended rate of tax -as well as its scope. Then, the parliament must sign off on separate legislation clearing the GST rate and how it is to be applied.
The main opposition party, the Congress, has said a GST rate above 18% is unacceptable. The government has indicated that the rate will almost certainly be higher than 19%. Mr Jaitley has pointed out that the rate cannot be so low that the states incur vast losses. For five years, states that lose revenue will be compensated.
Because GST is applied at the time of consumption, it is producing states like Tamil Nadu that fear they will rack up losses.
Before it agreed to clear the GST, the Congress had pointed out that Mr Modi, as Chief Minister of Gujarat, had vehemently opposed the reform. Mr Modi said today that he had unanswered questions then that have been resolved now through both a better understanding of the proposal as well as the changes made to the reform based on the feedback from different parties and states.
