Two of India’s biggest tax reform initiatives — the Direct Taxes Code (DTC) and the Goods and Services Tax (GST) — will have to wait until a new Lok Sabha and a new government is in place, thereby slowing down efforts made over the years on consensus-building to modernise the country’s tax laws.
If adopted, GST can dramatically alter tax administration by giving a one-shot solution to a welter of levies such as excise, value-added tax (VAT) and octroi and stitch together a common national market.
Under the system, the Centre and states will tax goods and services in identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each on that good.
The government had introduced a Constitution Amendment Bill in 2011 in the Lok Sabha to enable GST’s roll-out. A new government and Lok Sabha will have to re-start work on the tax reform.
“I am disappointed that we have not yet been able to introduce GST,” Chidambraram said in his interim budget speech lobbing the ball back to the opposition parties for failing to hammer out a political consensus.
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Likewise, DTC, aimed at bringing sweeping changes in India’s income tax regime by rejigging the existing slabs and rates and removing a plethora of exemptions, will now have to wait for the next government to be in place.
“I leave it to you to answer the question, who blocked the GST when an agreement on the game-changing tax reform was around the corner? We have also got ready a Direct Taxes Code that will serve us for at least the next 20 years. I intend to place it on the website for a public discussion without partisanship or acrimony. I appeal to all political parties to resolve to pass the GST laws and the DTC in 2014-15,” Chidambaram said.
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