Day of reckoning for GST

India’s biggest indirect tax reform measure - to usher in a Goods and Services Tax regime and create a ‘common market’ across the country - faces its first stern, parliamentary test on Wednesday when the enabling Constitution Amendment Bill comes up for discussion in the Rajya Sabha.

All eyes are on Finance Minister Arun Jaitley, who has been spearheading the hectic political negotiations on behalf of the Narendra Modi-led NDA government over the past week, by harnessing his consummate negotiation skills to get other parties, particularly the Congress, to back the landmark legislative effort.

D-Day in the Rajya Sabha: Click here to read PDF

The Centre is keen to get the Bill passed in this short Monsoon Session of Parliament, and eventually to usher in the GST regime by April 1, 2017. There is plenty at stake economically and politically: the GST is expected to add 1.5-2 percent to the GDP, which the BJP expects to politically profit from in the run-up to the 2019 elections.

While much of the focus of these parleys has been on getting the primary Opposition party, the Congress, on board, the other regional parties, such as the AIADMK, too needed to be persuaded, insiders told BusinessLine . “The AIADMK is yet to reveal its cards, but we are hopeful,” said a senior BJP member.

The Congress appeared to signal a climbdown, evidently not wanting to risk political isolation, particularly after the Empowered Committee of State Finance Ministers endorsed the Bill with minor tweaks.

“Initially, there were ego issues between the Congress leadership and the BJP because when the Congress was in power and wanted to implement GST, the latter had opposed it,” according to informed sources.

Congress capitulates “However, once the States gave their nod, the Congress found itself on the backfoot as it did not want to be seen to be the only one opposing the key reform measure that is, after all, GST essentially the Congress’s baby.”

On the other hand, the BJP, which till Monday had been saying it would press ahead without the Congress, did not want to be seen as incapable of building a consensus on such a key reform, they added.

Consequently, nearly seven years after the original (planned) rollout of the GST, the landmark reform measure will be a step closer to implementation if all goes well on Wednesday.

Once the Constitution Amend Bill is passed, there will be the Central GST Bill and the State GST Bills. “Only after these too are approved can the rollout happen,” an official explained.

Fresh amendments to the Bill as cleared by the Lok Sabha in May last year were recently taken up by the Cabinet. The amendments include scrapping the 1 per cent additional tax on inter-State trade. It also proposed that the GST Council “shall” set up a mechanism to adjudicate disputes arising between the Centre and the States or between States.

The fresh amendments also include a provision to ensure that States are compensated for any revenue loss for five years. To ensure that the tax revenues earned by the States does not get stuck in the Consolidated Fund of India, a new clause has been proposed.

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