India took a giant step towards a goods and services tax with the Rajya Sabha, in a rare show of strong bipartisan convergence, approving the tax reform measure first considered almost 30 years ago. Once implemented, it is expected to do away with multiple indirect taxes, make the economy more efficient and transform the country into a single market.
The Modi government finally crossed the Rajya Sabha hurdle--where its lacks a majority--after more than 18 months of tough negotiations with Congress paved the way for implementation of the legislation. The government's ability to steer the Constitution amendment through choppy political waters was seen as a test of its commitment to reforms.
There were some dramatic moments as finance minister Arun Jaitley and his Congress predecessor P Chidambaram faced off. Chidambaram sought a categorical assurance that subsequent GST-related bills would not be introduced as money bills, a parliamentary device that does away with the need for Rajya Sabha's approval. Jaitley got around the demand by pointing out that state finance ministers from Congress-ruled states would be part of the process to finalise a GST rate and draft bills.
Other sticking points between the government and Congress were resolved by four key amendments moved by Jaitley .These were scrapping a 1% additional tax on inter-state goods, accommodative language on dispute resolution, assured compensation to states for 5 years for any revenue loss and legal backing to ensure states' share of taxes remain separate.
No party opposed the amendment and AIADMK was the sole entity to express its dissatisfaction and staged a walkout.The GST bill was approved by a 203-0 vote with a lack of fuss that belied the long drawn and acrimonious exchanges that saw the landmark legislation being stalled in Parliament. While passage of the Constitution amendment marks a big political milestone as it needed the support of the opposition, the next steps require sustained efforts as 50% of states must approve the legislation.The setting up of the GST council is a vital element as the entity will determine the GST rate and institute a dispute resolution mechanism.
While the rollout date of April 1, 2017 seems daunting, the government must reach a consensus on the rate which does not hurt consumers but also protects the revenue needs of states and is also non-inflationary . Congress's demand to cap the rate at 18% is a political challenge as the party argues that this protects the interests of the poor.
Jaitley and Chidambaram, both lawyers, engaged in a verbal duel as the finance minister argued that he could not pronounce on yet-to-be-drafted legislation while also pointing out that eight state finance ministers belonging to Congress are part of the empowered committee. Chidambaram's insistence on an assurance that the legislation to follow will not be money bills was linked to Congress demand that the rate be capped at 18%. Jaitley did not offer any specific assurance but said the House would be taken into confidence.