- Vote on GST tax reform likely on Wednesday in Rajya Sabha
- Congress says – broad understanding – reached with government
- GST creates national sales tax to subsume matrix of tariffs
NEW DELHI: India’s biggest tax reform in decades could become a reality on Wednesday with the main opposition party, the Congress, declaring that it has arrived at “a broad understanding” with the government after months of negotiations.
The government wanted the national Goods and Services Tax or GST to be debated and voted on tomorrow, but the Congress forced a delay to Wednesday because chief Sonia Gandhi and other Congress leaders are campaigning tomorrow in Varanasi, the constituency of Prime Minister Narendra Modi.
“All the issues we have raised are there in the GST constitutional amendment,” said Congress leader Anand Sharma to NDTV, referring to the proposal that will change the constitution to introduce the GST, a national sales tax which subsumes a complex matrix of central and state tariffs.
The Congress has been talked out of insisting that the limit on the tax rate be stated in the law. That would require changing the constitution each time the rate had to be revised. “On the capping (on GST rate) we still want ring fencing and states to come to an agreement with the centre,” said Mr Sharma.
GST could add upto two percentage points to economic growth, according to Finance Minister Arun Jaitley, who has led consultations with a line-up of state governments, regional parties and the Congress to win consensus.
The GST Bill was cleared last year by the Lok Sabha, where the government has an easy majority. On Wednesday, it must get the support of two thirds of the Rajya Sabha, which has 243 members. The Congress has the biggest presence with 60 members. With a slew of regional parties backing the reform, the government believes it can get 162 votes – what it needs to turn the proposal into law – even if the Congress is not on board.
But the Congress’ cooperation is needed so that it does not cause disruptions to ensure the bill is not debated – a practice it has exercised in earlier sessions of parliament.
To ensure that, the government has agreed to two boldface Congress demands. A 1% inter-state tax that would be applied by states that manufacture goods has been cancelled. (GST taxes consumption so these states will lose revenue and for five years, they will be compensated by the centre.
The government has also agreed to an independent council that will handle disputes between states over sharing revenue.
If the Congress were to reject the proposal on Wednesday despite these changes, it would be seen as obstructing a major reform (and one whose earliest iteration it authored when it was in power). If the GST goes through, the government can count not just on cheer but also the confidence from investors that it can maneuver crucial economic policies through a complicated political system that includes it being in a minority in one house of parliament – at least for now.