Political gridlock holds up landmark tax reform

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New Delhi | Published: July 30, 2015 8:41:49 PM

Parliament is unlikely to approve a landmark tax shakeup in its current sitting, a new setback for Prime Minister Narendra Modi's reform agenda...

Tax reformsThe GST proposed by Narendra Modi govt, seeks to turn India into a common market, harmonising a slew of state and central levies into a national sales tax. (PTI)

Parliament is unlikely to approve a landmark tax shakeup in its current sitting, a new setback for Prime Minister Narendra Modi’s reform agenda that makes it harder to meet a deadline to launch the new levy by next April.

Failure to pass the bill for a nationwide goods and services tax (GST) in the “monsoon” session will further erode investor confidence, already hurt by the slower-than-expected progress on economic transformation since Modi took office a year ago.

The opposition Congress party has disrupted the upper house of parliament every day of the current session, which ends on Aug 13, in protest at alleged corruption linked to the ruling Bharatiya Janata Party.

Senior members said that in its present form the party will not support the GST bill, which is a constitutional amendment and requires a two-thirds majority to become law. In the upper house, Congress and allies control more than a third of votes.

The cabinet on Wednesday approved a minor amendment to the bill suggested by a select committee but did not address Congress’ main issue – a 1 percent additional levy that businesses warn undermines the spirit of the tax.

“If the government wants Congress support for the GST it should accommodate our suggestions,” Anand Sharma, Congress’ deputy leader in the upper house told Reuters.

His sentiments were echoed by Congress veteran Mani Shankar Aiyar, who sat on the select committee.

The GST seeks to turn India into a common market, harmonising a slew of state and central levies into a national sales tax. Finance Minister Arun Jaitley calls it the biggest reform since independence in 1947 that could add up to two percentage points to overall economic growth.

Parliament’s approval will set in motion steps towards a rollout of the new tax but several more hoops must be passed before it can be implemented. Officials say it will take at least six months for India to be ready for its formal launch.

“Any further delay will make it be very tough to meet the April 1 deadline,” said Rashmi Verma, a senior official in the finance ministry’s revenue department. “We can still meet the deadline, but it will be a very tough ask.”

Months of parliamentary opposition forced Modi to focus on the GST in this session, scaling back earlier ambitions to make progress on land and labour reforms before Aug. 13.

On Thursday, Jaitley implored Congress to help pass the tax bill. “These kinds of disruptions hurt the economy,” he said.

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