India Rules Out Sales Tax Passage This Year in Blow to Modi

  • Parliament to pass the bill in the next session, official says
  • Delay imperils Modi's goal of implementing the tax in April

An Indian government official ruled out a last-minute agreement with the opposition this year on a proposed national sales tax, dealing a blow to Prime Minister Narendra Modi’s reform agenda.

Parliament will pass the bill in its next session, the official told reporters in New Delhi, asking not to be identified as the current sitting runs through Dec. 23. Opposition groups have repeatedly disrupted this session, citing issues ranging from rising social intolerance to charges of fraud against the powerful Gandhi family that leads the Congress party.

The delay imperils Modi’s plan to implement the levy -- known as the goods-and-services-tax -- from April 2016. Once parliament passes the bill to amend the Constitution and pave way for the GST, it needs to be ratified by at least 15 of India’s 29 states before it becomes a law.

"If it was passed it would have provided direction for the long term, but it is just a matter of time since all parties agree to it," said A. Balasubramanian, chief executive officer at Birla Sun Life Asset Management Co. in Mumbai. "To that extent it is a disappointment."

U-Turn

The GST aims to unify India’s 1.2 billion population into a single market and policy makers say it will spur growth and revenue by boosting compliance. The levy was first proposed in 2006 by Modi’s predecessor, while Modi himself had blocked its passage in parliament.

Since taking charge last year, Modi has championed the GST and worked to achieve consensus. The tax rate will almost certainly be below 18 percent, Finance Minister Arun Jaitley said on Wednesday, and a government panel earlier recommended scrapping a 1 percent additional levy on goods shipped out of producing states, matching two of the Congress party’s key demands.

However the opposition continued to stall parliament, this time in protest against what the Congress terms a "political vendetta" by Modi’s ruling party against Congress leaders Sonia and Rahul Gandhi. The Gandhis are due to appear in court on Dec. 19 on allegations that they cheaply acquired 20 billion rupees ($300 million) of real estate assets from a defunct newspaper.

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