With the Congress signalling its support, it is now hoped that the constitutional amendment bill enabling the implementation of the goods and services tax (GST) will be presented in the Rajya Sabha this week.
The passage of the bill will truly be a landmark event in India’s economic reform process; the government deserves credit for bringing all major political parties on board.
It has also done well by dropping the idea of imposing an additional levy of 1% on supply of goods with a proposal to compensate states for revenue losses arising due to migration to the new tax system for five years.
The Congress has also done the right thing by revisiting its demand of capping the GST rate in the Constitution.
The next challenge will be to arrive at a revenue neutral rate as the state governments have rejected the 18% rate proposed by the Arvind Subramanian panel.
It is important to note that a very high rate or too many distortions can defeat the idea of GST.