New Delhi, December 5

India’s proposed sales tax edged closer to approval on Friday after a government-appointed panel backed the lower rate and simpler structure that the opposition Congress party had demanded.

Aimed at creating a customs union for India’s 1.2 billion people, Goods and Service Tax (GST) is the biggest revenue shake-up since independence. Supporters say it will add up to two percentage points to economic growth by replacing multiple federal and state tax levies, a chaotic structure that inflates costs for businesses.

The measure tops PM Narendra Modi’s legislative agenda. The Congress party wants Modi to cap the rate of GST at less than 20 per cent, scrap a proposed state levy and create an independent mechanism to resolve disputes on revenue sharing between states.

In what appears to be backing for its position, a government-appointed panel suggested a standard GST rate of 17 to 18 per cent. It also backed scrapping a proposed one per cent additional levy by states on the cross-border transport of goods.

“The report will certainly put pressure on the government to accept opposition’s demand,” said Mahesh Jaising, a partner at BMR & Associates.

While Modi’s Bharatiya Janata Party enjoys biggest majority in the lower house of parliament, it is in a minority in upper house and is dependent on Congress to pass Bills.

The government is widely expected to hold talks with the Congress party next week to work out a compromise on the Bill. Manish Tewari, a senior member of Congress, said Modi’s stand would determine his party’s position.

Parliament’s approval will set in motion steps towards a rollout of new tax, but several more hurdles must be passed before it can be implemented.

Jaitley has set April 1, 2016 as the date for new tax’s formal launch, which appears optimistic. While Congress party’s support for the GST is vital, it doesn’t guarantee its rollout. The recommendations might run into trouble with states, which have been demanding higher tax rates as well as additional levy on cross-border movement of goods.