Lok Sabha nod for pan-India goods and services tax

New Delhi: The Lok Sabha on Wednesday gave its consent to a far-reaching amendment to the Constitution to pave the way for a pan-India goods and services tax regime and create a unified market across the country by doing away with a multiplicity of central and state levies.

The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014, was passed by a division with 336 ayes, 11 against and 10 abstentions. Lok Sabha Speaker Sumitra Mahajan announced the bill was approved with two-thirds majority of the house, as required.

"The whole country -- one-sixth of world's population -- will now become a single market. It will give a necessary fillip as far as trade is concerned," Finance Minister Arun Jaitley said as some opposition parties led by the Congress walked out, wanting a re-look by a parliamentary panel.

Jaitley further said the new indirect tax regime, which was proposed around 12 years ago, could potentially add another 2 percent to India's economic growth. He also termed it the most important and the biggest tax reform since independence.

The bill will now go to the Rajya Sabha, the upper house, for passage following which it has to be ratified by at least half the states, before the president can put his seal of approval for it to take effect.

Earlier, replying to the debate on the amendment bill, Jaitley refuted opposition claims that the government was pushing through some amendments to some provisions without taking the house into confidence and refusing to send it to a parliamentary panel.

The finance minister said the same recommendations of the parliamentary panel, when the original bill was referred to it, were incorporated in the amended version and that the opposition had no reason to fault the government on this count.

One such amendment, he cited as an example, was to set up a goods and services tax council, with representations from the central and the state governments, to oversee any dispute, rather than leave it to a panel led by a retired Supreme Court judge.

Jaitley also warned that referring the amendment bill back to the relevant Standing Committee of parliament would result in missing the target date for its implementation from April 1 next year, despite the broad consensus that had already been achieved after extensive consultations.

The main purpose of the bill is a unified regime that will subsume most indirect taxes levied by the central and state governments such as excise duty, service tax, value added tax, sales tax and octroi to facilitate a common market across the country.

Industry was elated and felt this was the first step to create a unified market. "We are hopeful that the bill would get the assent of the Rajya Sabha also in the current session of parliament with the support of all the political parties," said CII director general Chandrajit Banerjee.

"There would be more no tax on tax," the finance minister said in his reply to the debate and referred to how a plethora of levies were leading to duplication. It was escalating customer prices, stoking inflation, preventing efficient supply chains and lowering economies of scale.

He also mentioned that the union cabinet has recently approved payment of compensation to states for the loss they would incur on account of a cut in the central sales tax from four percent to two percent. This payment will be made for five years.

Finance ministry officials said preliminary estimates indicated that Rs.33,000 crore can be the amount payable to states and union territories for the entire period, and settling these claims will help create an enabling environment for rollout of the new regime.

The Lok Sabha approved a government amendment to further help states in the transition phase, by levying an additional tax of one percent on inter-state trade on goods. Like in the original bill, petroleum products, alcohol and tobacco were kept out of its purview till later.