Lok Sabha passes GST Bill.

The proposed national sales tax would harmonise a mosaic of state and central levies to create a unified market.

The Lok Sabha on Wednesday [06/05/2015] passed a constitutional amendment bill for the roll out of the goods and services tax (GST) starting in April 2016, considered a major reform to make India a single market with uniformity in indirect taxes and likely boost to the economy.

A constitutional amendment bill needs to be approved by a two-thirds majority in both houses of Parliament and ratified by half the state legislative assemblies before coming into effect.

While the Bharatiya Janata Party-led National Democratic Alliance found it easy to pass the bill in the Lok Sabha, where it is in a majority, the real test will come in the Rajya Sabha where the ruling alliance is in a minority, with 62 members in a 245-member house.

The bill is expected to be introduced in the Rajya Sabha later during the budget session which ends on 13 May.

All goods and services, with the exception of alcohol, will come under GST, which will replace central taxes like excise duty and service tax and state levies such as sales, value-added, entertainment and purchase taxes.

All entry taxes like octroi will also be subsumed under GST. The bill also proposes to include petroleum under GST but has left the decision over when to start levying GST on such products on the GST council, a body to be formed at a later date.

The centre has made a provision in the bill promising to compensate states for five years for losses arising from GST implementation. While states will be compensated for 100% of their losses in the first three years, 75% in the fourth year and 50% in the fifth year.

Jaitley said the only new clause he has introduced beyond the recommendations of the standing committee is a proposal for an additional 1% non-vatable tax in addition to the Integrated GST or IGST that manufacturing states like Maharashtra, Tamil Nadu and Gujarat can impose for two years to allay fears over loss of revenue to the consuming states. IGST, or the sum of central GST and state GST, will be levied on inter-state movement of goods and will be collected by the centre and later distributed to states.