NEW DELHI (AP) — India's upper house of Parliament on Wednesday passed a bill to rationalize the country's convoluted tax structure, creating a "one nation, one tax" market to boost its economy.
India's main opposition Congress party and other groups voted for the bill after working out compromises with Prime Minister Narendra Modi's government.
India's 29 states currently levy their own sales taxes and protect local producers from competition, dividing the Indian market. The tax reform is expected to provide a uniform tax structure across the country, India's Finance Minister Arun Jaitley said.
The government expects the reform to add up to 1.5 percent to its annual economic growth of 7.5 percent.
The bill now returns to the lower house to incorporate the upper house amendments approved Wednesday. It will become a law after 50 percent of India's 29 state legislatures have approved it.
The idea for a unified Goods and Services Tax was broached 13 years ago, but political differences and fractious coalition governments in the country saw the move languishing all these years.
The government accepted a key opposition Congress party demand of scrapping a contentious 1 percent levy of inter-state supply of goods. Some issues like the clause on compensation to states for any loss of revenue were still being worked out.
"It will convert India into one unified market with one uniform tax in the country. It will improve the base of taxation and make evasion extremely difficult," Finance Minister Jaitley said.
Ashok K. Hinduja, Chairman of the Hinduja Group of Companies, said the reform would make India an attractive destination for foreign investments." Manufacturing will get more competitive due to the emergence of a national market as against the present fragmented one."
India decided to give up a socialist-patterned economy in 1991, but the process of economic reforms has been slow to come.