Government may scrap 1% inter-state tax to move closer to GST

NEW DELHI: India may have moved closer to the much-awaited goods & services tax (GST) with the government and Opposition finding some common ground on crucial elements of the proposed levy. This follows PM Narendra Modi and the ruling Bharatiya Janata Party reaching out to Congress in the search for a compromise to break the stalemate on GST. The government is likely to concede the Congress demand to do away with the 1% tax on interstate sales, which was proposed to compensate manufacturing states such as Maharashtra, Gujarat and Tamil Nadu that fear loss of revenue in the new indirect tax regime. Government sources, however, indicated that capping the GST rate in the Constitution — as demanded by Congress — is not acceptable.

Though the Centre is not willing to cap the GST rate in the Constitution, government sources said alternatives such as including it in the law related to this could be looked at. Chief Economic Adviser Arvind Subramanian is likely to submit the report on a revenue-neutral rate for GST on Friday. This will provide a crucial input to the GST Council in setting rates. The government, however, is keen to keep rates reasonable so that any inflationary impact of the tax is contained. The Modi administration is also keen to take all stakeholders on board and will not go ahead without that, sources said. For its part, Congress is unlikely to press for changes in the composition of the GST Council and go with what the Centre has proposed in the constitution amendment Bill that’s needed to allow states to tax services and the Centre to tax goods at the retail stage.