BANGALORE: With state finance ministers having dropped the issue of compensation in lieu of a cut in the central sales tax from the agenda of their upcoming meeting on implementing the Goods and Services Tax (GST), the major hurdle appears to have cleared in reforming India's indirect tax regime.

Seen as a key to facilitating industrial growth and improving the business climate in the country, the GST Bill requires needs to be passed by a two-thirds majority in both houses of parliament and by the legislatures of half of the 29 states to become law.

In line with the BJP's position on the GST as facilitating industrial growth, Finance Minister Arun Jaitley had told the states that their concerns over its design and issues related to compensation for revenue loss on account of rolling out GST and phasing out the central sales tax (CST) regime would be suitably addressed.

CST was one of the major roadblocks for a GST, which was originally scheduled to come into from April 1, 2010.

While CST is levied by the centre on inter-state movement of goods but is collected by the states, the issue of compensation arose because the centre cut CST from four percent to two percent in phases after state-level value added tax (VAT) was introduced from April 1, 2005.

By subsuming most indirect taxes levied by the centre and the states such as excise, service tax, VAT and sales tax, GST proposes to facilitate a common market across the country, leading to economies of scale and reducing inflation through an efficient supply chain.

The previous UPA government had introduced a bill in parliament proposing a GST council and a dispute resolution panel for fixing the rate of the new tax for both states and the centre. However, the bill had received stiff opposition from the states, including the BJP-ruled ones like Gujarat and Madhya Pradesh.

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