GST bill marks growing political consensus for reforms: RBI

The Reserve Bank of India acknowledged the Goods and service tax bill as a new era in cooperative fiscal federalism and a growing political consensus for effective economic reforms in the country.

The central bank said, "The passage of the Goods and Services Tax (GST) Bill marks a new era co-operative fiscal federalism and a growing political consensus for economic reforms."

India's fiscal powers and functional responsibilities have been categorized between the Central and State government following the principles of federal finance. Such divisions are specified under the Seventh Schedule of the Constitution in three lists namely - the Union List, the State List and the Concurrent List.

The GST was passed unanimously in the Rajya Sabha and the Lok Sabha earlier in August putting an end to a long-standing  stand-off on a crucial tax reform in the country.

The BJP government now needs ratification of the amended GST Bill from atleast 50% of the states. Once that is in place, it will be taken up again in the Winter Session of the Parliament.

So far, the states and central government have had their own tax regime. Taxes vary state to state, leading to multiplicity. The main agenda of GST bill is to subsume most of the indirect taxes and levy one tax across the country on goods and services.

RBI believes that the implementation of GST will boost trade, investment and growth  by reducing supply chain rigidities, encouraging scale economies, cutting down transportation and transaction costs, as also promoting efficiency gains.

By eliminating the cascading impact of taxes on production and distribution costs, the GST would also improve the overall competitiveness of the economy, added RBI.