The Union Cabinet on Wednesday approved the Constitutional Amendment Bill on Goods & Services Tax (GST), inching closer to the rollout of an ambitious indirect tax reform expected to raise revenues and boost growth.
The government aims to implement GST by April 1, 2016 and has been working overtime to get states on board. The tax reform is a centrepiece of the Narendra Modi government's economic agenda.
Sources said the government hopes to introduce the bill in the current session of Parliament. It may be introduced in the Rajya Sabha on Thursday . The tax reform measure has missed several roll out dates in the past due to lack of consensus between the Centre and states on a host of issues and the government is keen to get the bill approved in the current session.
On Monday night, the Centre managed a breakthrough after finance minister Arun Jaitley assured the states of a fair deal. Sources said initially, petroleum will be kept out of GST but will be included in the new tax set-up once states come on board. It may take two years but the government hopes to include it in the years ahead. Alcohol too is expected to be kept out of the comprehensive levy . Additionally , the Centre has devised a levy of 1% above the GST rate on select items and is assuring the states full compensation for revenue loss for three years, followed by 75% in fourth year and 50% in the fifth.
The Centre does not see a significant amount of compensation to be paid as it expects collections through GST to be better due to fewer exemption
In a bid to bridge the trust deficit between the states and the Centre, Jaitley had approved the release of Rs.11,000 crore as compensation for loss on account of central sales tax which had been pending since 2010. He had vowed to pay the pending amount as he moved to ensure that the states come on board for rolling out the tax reform measure which has the potential to add significantly to government revenues and overall economic growth.
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