By Manoj Kumar and Rajesh Kumar Singh
NEW DELHI (Reuters) - India's proposed sales tax edged closer to approval on Friday after a government-appointed panel backed the lower rate and simpler structure that the opposition Congress party had demanded.
Aimed at creating a customs union for India's 1.2 billion people, the Goods and Service Tax (GST) is the biggest revenue shake-up since independence from Britain in 1947. Supporters say it will add up to two percentage points to economic growth by replacing multiple federal and state tax levies, a chaotic structure that inflates costs for businesses.
The measure tops Prime Minister Narendra Modi's legislative agenda. The Congress party wants Modi to cap the rate of GST at less than 20 percent, scrap a proposed state levy and create an independent mechanism to resolve disputes on revenue sharing between states.
In what appears to be backing for its position, a government-appointed panel suggested a standard GST rate of 17-18 percent. It also backed scrapping a proposed 1 percent additional levy by states on the cross-border transport of goods.
"The report will certainly put pressure on the government to accept the opposition's demand," said Mahesh Jaising, a partner at tax consultancy BMR & Associates LLP.
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While Modi's Bharatiya Janata Party (BJP) enjoys the biggest majority in 30 years in the lower house of parliament, it is in a minority in the upper house and is dependent on Congress to pass bills.
The government is widely expected to hold talks with the Congress party next week to work out a compromise on the bill. Manish Tewari, a senior member of Congress, said Modi's stand would determine his party's position.
Parliament's approval will set in motion steps towards a rollout of the new tax, but several more hurdles must be passed before it can be implemented.
Jaitley has set April 1, 2016 as the date for the new tax's formal launch, which appears optimistic.
While the Congress party's support for the GST is vital, it doesn't guarantee its eventual rollout. The recommendations might run into trouble with states, which have been demanding higher tax rates as well as the additional levy on the cross-border movement of goods.
"We need to wait and watch the reaction of states," said Jaising.
(Writing by Rajesh Kumar Singh; Editing by Ruth Pitchford)