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.
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.
