GST Reform’s Big Test Could Be Tuesday, PM Modi Holds Strategy Meet

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The government will next week, most likely on Tuesday, bring its proposal for the long-awaited tax reform, the Goods and Services Tax or GST, to the Rajya Sabha.

The prime minister met with top ministers tonight to firm up strategy.

The last few weeks have placed Finance Minister Arun Jaitley in exhaustive negotiations with the main opposition party, the Congress, and consultations with state governments and regional parties, whose support is key for the legislation.

“We have our fingers crossed,” Mr Jaitley said to reporters today, indicating that the government believes it has accrued the support of two-thirds of the Rajya Sabha, need to amend the constitution to turn GST into law.

Of the 32 parties, 30 are now supporting the bill.

The Congress has more or less been appeased with the government agreeing to drop a one per cent tax on goods crossing states that was designed to compensate those states that manufacture goods (because GST is a consumption tax and they would lose money).

Once the constitutional amendment is passed, the government will present a bill on the details of the GST, which will include the rate of tax along with a limit that it cannot exceed.

The GST, which replaces a confounding slew of central and state taxes with a unified national tax, could boost India’s economic growth by two percentage points, the Finance Minister has claimed.

The constitutional amendment which introduces the GST has been cleared by the Lok Sabha, where the government has a clear lead. The Rajya Sabha has 243 members currently (two seats are vacant). The government needs two-thirds or 162 votes in its favour. The ruling BJP with its allies and regional parties has accrued the numbers it needs, the government believes, even if the Congress, with its 60 members, remains opposed.

However, the government needs the Congress to cooperate by not disrupting the house which would prevent the bill from being both taken up and voted upon.

The AIADMK, which governs Tamil Nadu and has 13 members, remains against the GST but the government hopes it will walk out in protest to please its audience at home while also helping the centre by lowering the number of votes needed for the bill to clear.

The actual rate of the tax – the Congress says it must be no higher than about 17 per cent – will be decided in consultation with all states through what is known as the GST Council.

If the government is able to win this round of GST, it will have demonstrated some serious political gamesmanship along with introducing a reform that investors have been desperate for.

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