The Lok Sabha on Wednesday passed key legislations, putting Asia's third-largest economy on course to launch a nationwide goods and services tax (GST) from July.
Finance Minister Arun Jaitley aims to roll out the new sales tax from July 1 that will subsume a slew of federal and state levies, transforming a nation of more than 1.2 billion population into a single market.
What Jaitley calls the biggest tax reform since independence in 1947 is expected to boost economic growth by about 0.5 percentage points in its first year of implementation.
The four bills, passed by the Lok Sabha, would next be presented before the Rajya Sabha.
Proposed tax rates range from 5 to 28 percent, with 12 percent and 18 percent being the standard rates. It has not been decided yet which tax rates will apply to which categories of goods.
The Central GST Bill, 2017; The Integrated GST Bill, 2017; The GST (Compensation to States) Bill, 2017; and The Union Territory GST Bill, 2017 were passed after negation of a host of amendments moved by the opposition parties.
Replying to the seven-hour-long debate, Finance Minister Arun Jaitley said the GST, which will usher in a uniform indirect tax regime in the country, will make commodities "slightly cheaper".
He said the GST rates would depend upon whether the commodity is used by a rich person or a common man.
Jaitley said once the new regime is implemented, the harassment of businesses by different authorities will end and India will be one rate for one commodity throughout the country.
He said the GST Council, comprising Finance Ministers of Union and states, had agreed to take a decision on bringing real estate within the ambit of the new tax regime within a year of its rollout.
On the impact of GST on prices, Jaitley said: "Today you have tax on tax, you have cascading effect. When all of that is removed, goods will become slightly cheaper".
On why the Council has decided on multiple GST rates, Jaitley said one rate would be "highly regressive" as "hawai chappal and BMW cannot be taxed at the same rate".
He said currently food articles are not taxed and those will continue to be zero rated under the GST. All other commodities would be fitted into the nearest tax bracket.
The GST Council has recommended a four-tier tax structure — 5, 12, 18 and 28 per cent. On top of the highest slab, a cess will be imposed on luxury and demerit goods to compensate the states for revenue loss in the first five years of GST implementation.
However, the Central GST (CGST) law has pegged the peak rate at 20 per cent and a similar rate has been prescribed in the State GST (SGST) law, which takes the peak rate to 40 per cent which will come into force only in financial exigencies.
Jaitley said the cess would be transient for a period of 5 years so that the proceeds can be utilised to compensate the states.
Touted as the biggest taxation reform since Independence, GST will subsume central excise, service tax, VAT and other local levies to create an uniform market. GST is expected to boost GDP growth by about 2 per cent and check tax evasion.