Modi rushing to meet India sales tax deadline after setback

[NEW DELHI] Indian Prime Minister Narendra Modi's government has laid out an ambitious road map to meet an April 2016 deadline for implementing a national sales tax after failing to win parliamentary approval this week.

The government intends to pass a constitutional amendment clearing the way for the goods and services tax in the next parliamentary session in July, Revenue Secretary Shaktikanta Das said in an interview. It will then pass a law to implement the tax in the winter session starting around November, he said.

"We will have to work overtime," Mr Das said at his New Delhi office on Friday. "Why think negative at this stage? Nobody in the parliament is opposed to the concept of GST and the need to bring in GST."

Meeting the target of April 1, 2016, is key to Mr Modi's efforts to show investors he can push through India's biggest tax reform since its founding almost seven decades ago. Investors are starting to question whether he can get economic proposals through the opposition-controlled upper house, leading to a stock selloff as he approaches one year in office.

Mr Das declined to specify the rate of the GST, saying it would be determined by a committee headed by the finance minister after the constitutional amendment is passed. Under current rules, India's federal government and 29 states set rates for more than a dozen different types of taxes.

"All of us recognize that the rate is very critical to the success of GST," MrDas said. "And the rate has to be an acceptable rate which is good for consumers and good for industry and the economy." The structure of India's GST is closest to Australia and Canada, Mr Das said. The rate in Australia is 10 percent, while the rate in Canada ranges from 5 per cent to 15 per cent. India's finance panel had recommended an 18 per cent rate, Finance Minister Arun Jaitley told lawmakers on May 6.

After the July session of parliament, the government will have about a two-month window for more than half of the country's states to approve the amendment. Once that is passed, a committee can set the rate and resolve other details, Mr Das said.

The GST bill will then be introduced and passed in the winter session of parliament, Mr Das said. At the same, the government will finalize the information technology backbone and documentation required to implement the tax.

While the government can get the legal framework in place by April 2016, the implementation of GST will need to wait another 12 months, according to Amit Kumar Sarkar, a partner at Grant Thornton India LLP.

"You need to give a transition period of at least one year to the industry," he said. "It's a big change that will affect every industry."

BLOOMBERG