The Union Cabinet on Wednesday approved the Constitutional amendment Bill for the roll out of the Goods and Services Tax (GST), a crucial step before its likely introduction in the current session of Parliament.
The Cabinet decision comes soon after the Centre and states reached a consensus on the broad contours of the proposed tax on Monday.
While details of the proposed legislation have not been formally announced, the Union finance ministry had agreed to keep a provision in the Bill for compensation to states on any revenue losses from the roll out of GST for the first five years.
While the compensation would be paid in full for the first three years, the Centre would pay only a part of it in the next two years.
Sources said that with states fearing revenue loss, petroleum products would be kept out of the ambit of GST in the initial year. However, entry tax will be included in GST, but as a concession, states would be allowed to levy 1 per cent additional tax to meet any shortfall from the loss of entry tax.
The GST will subsume most indirect taxes at both the Central and state level including central excise duty, service tax, value added tax and local levies.
The Constitution amendment Bill for GST was originally introduced in the Lok Sabha in March 2011 by the UPA government and was also examined by the Parliamentary Standing Committee on Finance, which subsequently submitted its report.
The Bill, however, lapsed with the dissolution of the Lok Sabha, requiring the new NDA government to introduce the Bill afresh.
In other developments, the Cabinet deferred a decision on setting up a regulator for the real estate sector.
Further, the Cabinet Committee on Economic Affairs approved the formula to calculate the export subsidy on raw sugar.