The Lok Sabha on Wednesday passed a momentous legislation to introduce a countrywide goods and services tax (GST) that would take India closer to being a common seamless market.
Once adopted, it can dramatically alter tax administration in a one-shot solution by replacing a string of central and local levies such as excise, value added tax and octroi into a single unified tax to lower commercial barriers that impede ease of doing business.
The government plans to introduce GST from April 1, 2016.
The landmark amendment to the Constitution, however, stares at further hurdles ahead, with the ruling NDA in a minority in the Rajya Sabha, which must endorse the bill with a two-thirds majority.
Also, at least half of the state assemblies will have to ratify it before it finally becomes law.
Despite reservations from states, the legislation found support from minority parties that led the passage of the bill in the lower House.
But, in a note of historical irony, the Congress, which for years has been championing the need for replacing the layers of local and regional taxes that have caused red-tape, confusion and corruption with a single levy, led a walkout in the Lok Sabha, saying the rejigged bill of its 2011 version was not acceptable until it was examined by a parliamentary panel.
The Constitution Amendment Bill was passed by 352 votes against 37 after the government rejected the opposition demand of referring it to a Standing Committee.
Prime Minister Narendra Modi was not present in the House at the time of voting.
Replying to the debate on the bill before the Congress walked out, finance minister Arun Jaitley said the proposal to reform the indirect taxes has been pending for the last 12 years and his predecessor P Chidambaram also mooted it during UPA rule.
"A bill is not a dancing instrument that it will be jumping from Standing Committee to Standing Committee," Jaitley said.
The key reform initiative has remained stuck for years due to lack of political consensus among states and the Centre and has faced political hurdles as states fear it will rob them of their fiscal powers.
Jaitley allayed states’ concerns that the new tax structure will trigger a drop in revenues for them, adding that it would lower inflation and promote growth in the long run.
The bill offers a compensation package to states for potential revenue loss up to the first five years.
Ambiguous tax laws and byzantine local levies are among the a barrage of hurdles that analysts often blame for keeping away large-scale private investments in what should otherwise count as a massive, attractive market.