India gets closer to simplifying tax regime

Bloomberg

Prime Minister Narendra Modi’s cabinet met a key opposition demand on proposed legislation that would clear the way for a national sales tax, putting India closer to passing its most ambitious economic reform since the 1990s.
The cabinet decided to eliminate an additional 1 percent charge on inter-state sales that was included in a constitutional amendment bill to create a goods-and-services tax, known as GST. The opposition had argued that the additional levy would undermine the goal of creating a single market among India’s 1.3 billion people.
The development is welcome and could help “pave the way for political consensus and early passage of the bill,” Harishanker Subramaniam, a tax specialist at EY India, wrote in an e-mail.
Modi’s party has indicated it will push the measure next week for discussion and possibly a vote before the current session of parliament ends on Aug. 12. If the amendment clears the upper house, it needs to be ratified by more than half of India’s states. Then parliament must pass another bill to implement the tax.
Political bickering has held up the constitutional amendment in India’s upper house of parliament for more than a year. The GST, initially proposed by the main opposition Congress party a decade ago, would lower the cost of doing business in the world’s fastest-growing economy.
“This really is an important reform,” said Jan Dehn, London-based head of research at Ashmore Group Plc, which manages out $51 billion in emerging markets. “It would dramatically increase efficiency in the country and could lead to a wave of mergers and acquisitions. India’s home market is huge, but fragmented. GST would unify it.”