India clears major hurdle to introduce GST on July 1

new delhi/toronto — India cleared one of the last major hurdles to introducing a goods and services tax after government ministers finalised rates for substantial items in the biggest shakeup of the nation’s tax system since independence in 1947.

The ministers are meeting to finalize which goods fall under the GST’s five broad rates, along with final details on an exemption list, input tax credits and transitional provisions as the government races to meet the July 1 deadline for the national sales tax.

“Overall impact is not inflationary,” Finance Minister Arun Jaitley told reporters after meeting with state finance ministers in Srinagar, a city in the northern state of Jammu and Kashmir on Thursday. “The tax burden hasn’t increased in any commodity. In many there is a reduction particularly as tax on tax is gone. On some we have deliberately brought tax down. We are yet to take a decision on packed and branded food items. Broadly all rates of 1,211 items have been decided except these six categories,” Jaitley added.

Discussions will continue on Friday on categories including cigarettes, gold, bio-diesel, footwear and agricultural implements, a finance ministry official, who asked not to be identified, told reporters. The rules of transition and returns have also yet to be approved, Adhia said.

The national tax will replace more than a dozen federal and provincial levies as Prime Minister Narendra Modi strives to unify the nation of 1.3 billion people into a common market and make it easier to business in the world’s fastest growing major economy.

Much of the work on the GST has already been completed including the five broad “slabs” or tax rates. These include a rate of zero for essential items such as grains, five per cent for mass consumption items like tea, commonly-used products such as processed foods at 12 per cent.

Rates for household goods like soaps at 18 per cent and durables such as cars at 28 per cent. An extra charge will be levied on luxury goods such as alcohol. The federal government has already agreed on compensation to be paid to states in the event of any revenue loss due to the implementation.

As of May 4, eight states including Rajasthan, Telangana, Bihar, Madhya Pradesh, Haryana and Jharkhand had passed a state goods and services tax act in their state assemblies. The remaining states were likely to pass the state GST bill “before the end of this month,” except for one or two. — Bloomberg