The Centre and states agreed on Saturday on two draft laws needed to trigger the country’s biggest tax reform, a move that will likely make a range of services, including eating out and mobile internet, cheaper.
The consensus came at a meeting of finance minister Arun Jaitley and several state finance heads, overcoming almost a decade of political differences on how to replace a multi-layered set of central and state taxes and levies with a unified nationwide Goods and Services Tax (GST).
“July 1 looks possible for the rollout of GST,” Jaitley told reporters, referring to the latest in a series of missed deadlines.
Jaitley said the GST Council, which he heads and has state finance ministers, approved the draft of the Central GST and Integrated GST bills. These will now be ratified by Parliament and the states.
Successive governments have pushed to implement the GST, which will create a common market and help lower the tax burden, shore up government revenues, temper inflation and boost economic growth by 1-2 percentage points, analysts say. (See box) But political differences over how to divvy up GST revenues or compensate states for lost income because of the new tax held up progress.
Government sources said the GST legislation will likely be taken up as money bills during the second half of the Budget session starting March 9. This means they can’t be rejected by the Rajya Sabha, where Prime Minister Narendra Modi’s government doesn’t have a majority.
The proposed GST will have four tax slabs. Farmers and small traders are exempt.
“The applied rates will be 5%, 12%, 18% and 28%. The cap will be on the higher side,” Jaitley said without elaborating on the higher limit. States want the higher limit set at 40% to obviate the need to go to Parliament every time taxes have to be raised on certain goods and services.
West Bengal finance minister Amit Mitra told reporters the GST Council will meet again on March 15-16 to clear some outstanding issues, including thrashing out tax slabs for some outstanding state-specific goods and services.
“As many as 26 changes sought by the states have been accepted by the Centre. This shows the federalist character of India,” Mitra said.
Delhi deputy chief minister Manish Sisodia said the real estate sector must be brought under GST.
“Everybody knows that a lot of black money finds its way into real estate and bringing real estate under GST will help in curbing black money,” he said.