The long-awaited move towards a pan-India goods and services tax (GST) regime got a push on Wednesday with the federal cabinet giving its nod to some changes recommended by a parliamentary panel, notably an extra 1 percent levy to compensate states for potential tax losses.
"Yes, the cabinet has approved some of the suggested amendments (by the parliamentary panel)," an official told IANS after the meeting of the cabinet, presided over by Prime Minister Narendra Modi here.
The relevant legislation, in the form of The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 (referred to as the "GST Bill") was passed by the Lok Sabha, and upon introduction in the Rajya Sabha, it was referred to the Select Committee of Parliament for its recommendations.
The report of the committee, headed by BJP leader Bhupendra Yadav, was tabled in the Rajya Sabha on June 22.
According to sources, some of the suggestions accepted on Wednesday by the cabinet include a definite commitment to compensate states for the losses on account of moving to a unified pan-India indirect tax regime for five years, rather the a loose "may compensate" in the original bill.
The far-reaching indirect tax reform seeks to create single Indian market by subsuming most indirect taxes levies of the central and state governments, such as excise duty, service tax and value-added tax that is seen as facilitating tax compliance, and curbing inflation through better supply chains.
But for GST to get legal sanction is a lengthy process, given the BJP's strength in the upper house.
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Being a constitution amendment bill, it needs passage in parliament with two-thirds majority, following which at least 15 state legislatures have to ratify it, before being sent to the president for assent. As of now, the Congress, the Left and the AIADMK have not made up their minds as yet.
The opposition is mainly to the proposal for a 1 percent additional tax on goods travelling from one state to another, as it is felt it would not only push up prices, but also have a cascading effect.
Just ahead of the cabinet meeting, Congress leader M. Veerappa Moily, also the chair of the parliamentary panel on finance, expressed his reservations.
"Right from the beginning, we have been telling that there is no need for effecting such amendments through series of ordinances. There is some deficiency in this government," Moily told reporters on the margins of a seminar organised by leading industry chamber Assocham.
"They first act, and then think. Bu they should first think, and then act. The land bill is one of the examples. Even GST is an example," he said.
"But there is a big process involved. This (the amendment) will be only a constitutional framework for GST. The Centre has to pass a GST Act. Each state will then have to pass a GST Act. It is a long way off."