States fall in line, GST looks like a done deal; it's time Rahul Gandhi gave in

Goods and Services Tax, the biggest tax reform of the country, is likely to be implemented sooner than expected, if one goes by the comments of Finance Minister Arun Jaitley. Jaitley said this after he attended a meeting of finance ministers of 22 states in Kolkata, held to iron out the differences.

 States fall in line, GST looks like a done deal; its time Rahul Gandhi gave in

Rahul Gandhi and Arun Jaitley. PTI

Jaitley said all states except Tamil Nadu have agreed on the broader contours of GST. The meeting has agreed that issues of dual control and revenue neutral rate should be dealt by the Empowered Committee and not to cap the GST rate in the Bill.

With all states (but TN) agreeing on the larger framework of GST and the BJP improving its strength in Rajya Sabha post the recent biennial polls, GST is surely a bigger possibility in the monsoon session.

The BJP also has a psychological advantage over the Congress, the principal opposition party, which has put up a strong resistance in the upper house, after its notable performance in recent state polls. This means the Congress cannot continue to blackball the Bill for too long now.

Given that GST is a constitutional amendment bill, the BJP needs support of the two-third of the total members in Rajya Sabha. Chances for this appear higher post the latest round of elections to the Rajya Sabha. In the House of 245, the NDA has raised its tally to around 74 members, while the UPA has around 71 members.

If the BJP manages the support of regional parties too such as Trinamool Congress (12 seats) and AIADMK (12 seats), BSP (10 seats) and JDU (13 seats), GST looks like a done deal.

In this backdrop, the Congress’ opposition to GST will not mean much. The smart move by the party, especially by its heir-apparent Rahul Gandhi, would be to do a retreat from the GST battlefront and shout from the rooftops that he did that in larger economic interest. Such a move will score a brownie point for Gandhi and, more importantly, would help him avert a disastrous political defeat.

Critical for economy

As Firstpost has noted several times in the past, GST is critical for an aspiring economy such as India. The law promises to roll in several state level levies into one, offer clarity and broaden the tax base in the economy.

One major reason that turns off foreigners wanting to do business in India is the myriad tax laws of the country. Passage of GST can push the economic growth by 1.5 percent to 2 percent in the long run.

There are three major points of contention between Congress and BJP on GST issue. Whether to include the GST rate (agreed around 18 percent) in the constitution, do away with the inter-state levies and constitute an independent dispute resolution mechanism.

Of the three, the only major point of difference is capping GST in the Bill, but not something that has the potential to perennially block the passage of the crucial piece of reform.

For instance, a solution such as empowering a joint committee involving the centre and state governments (including Congress-ruled states) to set the GST rate, isn’t difficult to agree upon. The other two demands are actually non-issues.

The Congress’ opposition on the issue of capping the GST rate in the constitution, is a weak case now with all states agreeing on no cap on the GST. Anyway, capping GST in the Bill is a bad idea since that makes modifying the GST rate in times of exigencies difficult.

The Congress, the original architect of the GST, wouldn’t want to end up as a villain when the biggest tax reform finally happens in the country. Rahul should do the obvious and pull a politically smart move to gain a point.

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Updated Date: Jun 15, 2016 10:15:20 IST