New Delhi: With the government successfully stitching together a political consensus on the goods and services tax (GST) bill, the Rajya Sabha is set to endorse the legislation to roll out the landmark tax reform that will create a common market of 1.25 billion people.

The key to forging consensus was the amendments the National Democratic Alliance (NDA) effected in the bill, a copy of which was circulated among Rajya Sabha members on Tuesday.

The amendments proposed by the government seek to accommodate some of the demands of the Congress as well as address the concerns of states, particularly with respect to revenue losses.

The bill, to be taken up in the Rajya Sabha on Wednesday for discussion and vote, needs to be passed with a two-thirds majority by both Houses of Parliament and subsequently ratified by 50% of state legislatures.

GST, which has been billed as the biggest tax reform in independent India, is aimed at dismantling inter-state barriers to trade in goods and services by subsuming a slew of local levies. It was first proposed in 2006 by then finance minister P. Chidambaram.

The key amendments proposed by the government include deletion of the clause relating to levy of an additional 1% tax on supply of goods, a key demand of the Congress.

The bill passed by the Lok Sabha in May 2015 had a provision for additional tax of up to 1% on supply of goods for two years with the proceeds going to manufacturing states—a direct contradiction of the destination-based principle of GST.

This provision, included at the insistence of manufacturing states such as Gujarat, had raised concerns among both states and the industry on how it would cause a cascading effect, defeating the idea of a GST.

The amendments also seek to address a key concern of states regarding full compensation for five years for any revenue losses arising from a transition to GST.

The amended clause will now read: “Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for such period which may extend to five years."

The earlier version of the bill had used the term ‘may’ instead of ‘shall’—states sought more definitive language in the bill.

The government has also moved an amendment that seeks to clearly state that the GST council will have to establish a dispute resolution mechanism to settle disputes between the centre and the states or even among states. The earlier version of the bill only said that the GST council “may decide about the modalities to resolve disputes arising out of its recommendations".

The Congress had demanded the inclusion of a clause on setting up an independent dispute resolution authority in the bill—a demand which was opposed by all states.

There is also a clause that the amount collected under GST and due to states will not form part of the consolidated fund of India.

This has been done to ensure early disbursal of the taxes collected to states.

However, the government has not capped the GST rate at 18% in the bill, which was also one of the Congress’s key demands.

“The stage is set for the bill to be passed in Rajya Sabha," said Harishanker Subramaniam, indirect tax leader at EY. “The changes are on expected lines. The additional tax of 1% has been done away with. More certainty has been provided on compensation. There is also some change in language of the dispute resolution clause," he said.

On Tuesday morning, Congress vice-president Rahul Gandhi held a strategy meeting with leader of the party in the Lok Sabha Mallikarjun Kharge, former finance minister P. Chidambaram and Congress’ deputy leader in the Rajya Sabha Anand Sharma in Parliament House.

The ruling Bharatiya Janata Party (BJP) held a parliamentary party meeting on Tuesday in which Union finance minister Arun Jaitley briefed the party MPs on the legislation.

“We would list the bill for consideration tomorrow in Rajya Sabha. We have talked to all parties and the Prime Minister had said at the beginning of this session that GST is in the interest of all. We hope the GST bill will be passed with consensus," parliamentary affairs minister Ananth Kumar told reporters after the BJP meeting.

The NDA is in a minority in the Rajya Sabha with just 72 MPs. A vote will test its floor management skills as it will need the support of at least 163 members in the 245-seat House to pass the constitutional amendment bill.

Senior leaders in the government are confident that with the support of 72 MPs belonging to various non-Congress parties and 15 nominated and independent MPs, and now with the help of 60 MPs of Congress in the upper House, the bill will be passed by the Rajya Sabha with a substantial majority.

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