The Rajya Sabha will likely set India on path to a new tax regime when it takes up the goods and services tax bill on Wednesday afternoon, nine years after the proposal was first made.
After much political wrangling, the Modi government has secured the support needed for the constitution amendment bill to be passed by the upper house and set the ball rolling for a single tax to replace a string of local levies.
The bill was passed by the Lok Sabha in 2015 but failed to make a headway in the upper house, where the ruling NDA does not have the numbers.
The debate starts at 2pm. The government will want to wrap up the discussion and pass the bill on Wednesday itself. The bill will have to be sent back to the Lok Sabha as changes have been made to the one passed by it last year. The monsoon session concludes August 12.
The government is targeting a launch date of April 1, the start of the fiscal year, but it looks ambitious. The earliest the GST will kick in will be in July, say experts.
Though the architect of the tax reform, the Congress was leading the opposition to the bill but came around after the government agreed to some changes.
“Everyone has the feeling it will be a win-win situation for all. The bill is coming after much deliberation and we are positive about the outcome. We are confident all parties will come together to pass the bill,” parliamentary affairs minister Ananth Kumar said.
The government circulated nine amendments on Tuesday to address concerns of the Congress and other opposition parties. These include a more robust grievance redressal mechanism, scrapping of 1% additional tax and mandatory compensation to states for revenue loss under the new tax regime.
The GST council will have a system in place to decide on disputes between the Centre and a state, the Centre and more than one state or between two states. A mechanism to resolve such disputes was a key demand of the Congress. The GST council will have representatives of the Centre as well as states.
Though the Centre rejected the Congress’ demand to cap the GST rate at 18% in the amendment bill, it has assured the party to ring-fence the rate in the bill that will come up after the constitution amendment is passed in Parliament and approved by at least 20 states.
It also accepted a demand of regional parties that tax collected by state governments will not be parked in the consolidated fund of India, to allow quick disbursements.
Not all are GST-ready
The concept for a nationwide uniform tax was first announced by then finance minister P Chidambaram in his 2007 budget speech.
Congress vice-president Rahul Gandhi discussed the GST issue with senior leaders, including Mallikarjun Kharge, Chidambaram and Anand Sharma.
While politicians seem to be on board, many companies are unprepared for the GST.
“Companies, particularly smaller ones, are apprehensive,” Reuters quoted GR Ralhan, head of Roamer Woollen Mills in Ludhiana, as saying.
He called for more time to adjust and said a high rate of GST could put his firm out of business.
Countries that have introduced GST have often faced a relative economic slowdown before the benefits of a unified tax regime kick in.