India's parliament passes key tax reform bills

India's lower house of parliament on Wednesday passed four supporting bills that will pave the way for a landmark tax reform and transform the world's fastest growing economy into a common market.

The government aims to launch the goods and services tax (GST) law by July 1, replacing the decades-old patchwork of federal and state taxes, in one of the biggest economic reforms under right-wing Prime Minister Narendra Modi's government.

The four bills, which deal with central, regional and inter-state goods and service taxes, were passed by a vote after a seven-hour discussion.

"It is a landmark tax reform since independence. A historic day for all of us," Finance Minister Arun Jaitley tweeted.

But the main opposition Congress Party leaders challenged the government on the radical tax reform calling it "only a baby step".

The bills will now be presented before the upper house.

Government and businesses have pushed hard for years to bring in the new tax regime that they say will boost economic activity and add an estimated 1.5 to 2 percentage points to the annual GDP.

The new tax rate will be between five to 28 percent covering the entire range of goods and services in country.

Although the government is yet to finalise the tax rates on specific commodities and services.

The inefficiency of the current system leads lots of tax collection to fall through the cracks, while a fragmented market encourages local protectionism.

A system of tax credits will encourage more businesses to file returns -- bringing many transactions in the so-called shadow economy into the mainstream and widening the tax base.

The battle to introduce the economy-boosting GST has been one of the fiercest of Modi's premiership since his nationalist Bharatiya Janata Party swept the 2014 elections.

The delay in putting the flagship reform into action was largely because of the stiff opposition by Congress and some regional parties that blocked it repeatedly in the parliament.