The government has so far not won over the Congress, which has the maximum members in the Rajya Sabha.
Highlights
- GST tax reform creates national sales tax to replace matrix of levies
- Reform stalled in Rajya Sabha, Congress wants changes
- Government tweaks proposal to win over Congress, state governments
To rescue the crucial Goods and Services Tax or GST reform, the government has cleared substantial changes to the proposal to win support from opposition parties including the Congress, which has so far blocked the proposal.
Based on consensus among majority states and the Congress, the cabinet has cancelled a 1% inter-state tax which had been sanctioned for states that manufacture foods. As a national tax that replaces an intricate mesh of tariffs, the GST would earn governments revenue from consumption. So the government had planned to let production-intensive states like Tamil Nadu levy a 1% charge. The Congress has vetoed that.
In exchange, the centre will compensate states that lose revenue for the next five years - a key point made to Finance Minister Arun Jaitley at his meeting yesterday with his counterparts from states.
The centre has also agreed to give states more power in an independent body that would resolve disputes over revenue sharing.
With the new proposal, the government plans to meet regional and other parties over the next two days after which it wants to introduce the bill for debate next week in the Rajya Sabha, where the Congress has the maximum number of seats. So far, the Congress has held up the reform, arguing that the tax rate must be capped at 18 per cent, though it has reportedly agreed that the limit need not be stated in the new law.
For the tax reform to become a reality, the government needs not only the backing of states but also of two-thirds members in the opposition-dominated Rajya Sabha to pass a constitutional enabling amendment. A series of regional parties including the Biju Janata Dal and the Trinamool Congress are backing the bill.
The AIADMK, which governs Tamil Nadu and has 13 Rajya Sabha members, is not. Government sources say they are hopeful that the party will walk out during a vote, which will help in reducing the number of votes needed for the bill to go through.
Though the government may corral together the numbers it needs, the Congress has to abstain from disruptions to allow a debate and a vote on the proposal, a cooperation it has not extended in the past.