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Notwithstanding the triumphs in Maharashtra and Haryana, the Bharatiya Janata Party (BJP) will need the support of non-National Democratic Alliance (NDA) parties to get the constitutional amendment Bill on a national goods and services tax (GST) passed in the Rajya Sabha and ratified by at least half of the states.
It should not be too difficult though, say experts, since only a few states and parties are opposing the Bill.
In the recently conducted Assembly polls, the BJP won a majority in Haryana and is the largest political party in the Maharashtra. But even if they form the governments in both the states, the number of NDA seats in the Upper House of Parliament will increase only marginally.
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The NDA has 58 seats in the 242-member Rajya Sabha. The Bill has to be passed with a two-third majority. This means at least 161 members would have to vote for it, if all are present at the time of voting.
Among potential supporters, the Nationalist Congress Party has six MPs, Biju Janata Dal seven, INLD two and Bodo People's Front one. Most of the current 10 nominated members and nine Independents can be expected to support the government. This would take the tally to 93 seats.
The composition of the House would not change much before early 2016. Elections to around 10 seats would come up in early 2015. But 73 seats would go for polls only in early 2016. The Union government would not want to wait that long, since it is keen to table the Bill in the winter session of the Parliament.
The ruling alliance is better placed in the Lok Sabha with a tally of 335 (excluding the speaker) in the 542-member Lok Sabha. A two-third majority in the House means a bit higher strength of 361. With potential allies, this number is not difficult to reach in the Lower House.
Besides, the BJP-led NDA will now have governments in 10 states, if one assumes the party would cobble a majority in Maharashtra. Besides Haryana and Maharashtra, these states are - Punjab, Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh, Goa, Andhra Pradesh and Nagaland.
However, to get the Bill enacted into a law, ratification by at least half of the states is needed. This means approval from at least 15 states since Telangana is the 29th state.
Constitution expert Subhash Kashyap explained the states will not include Delhi and Pondicherry for this purpose.
In a year's time, only three Assemblies go to polls - Jammu and Kashmir, Jharkhand and Bihar. The BJP will have to win all the states to get closer to half of the states in its kitty.
The Bill is only an enabling mechanism to allow the Centre and states to impose taxes under GST. This is so because the Centre cannot impose duties beyond manufacturing and the states cannot levy service tax under the current scheme of things.
After the Constitution Amendment Bill, the Centre has to come out with its GST law and a model legislation, on the basis of which states would enact their laws. That will complete the process of GST.
Experts believe the BJP winning Haryana and Maharashtra does not mean much in terms of movement forward for the Constitution Amendment Bill.
"In my view, the BJP winning Maharashtra and Haryana does not make much difference as far as implementation of goods and services tax is concerned as both these states were not opposing it in any case," Pratik Jain, partner, KPMG, told Business Standard.
Madhya Pradesh and Gujarat were the two foremost states opposing the Constitution Amendment Bill when the UPA government was in power at the Centre. Both these states do not have too many much problems with the Bill now, provided compensation is adequately paid to them.
The most vocal state opposing the Bill now is Tamil Nadu because of fear of losing fiscal autonomy. In the Bill, there will likely to be a provision for a GST council, to be headed by the Union finance minister, and comprising all the state representatives, which would be authorised to make changes in the GST rates.
"As I see it, resistance to GST is limited to one or two states only. But, the issues can be discussed and resolved, as there is a broad alignment on the structure and contours of the GST," Jain said.
The current situation might also help the government expedite the consensus on the new tax reforms.
Another expert, on the condition of anonymity, said the Bill being proposed by the BJP is not much different from that of the Congress and, hence, it would be easier to form a consensus on the issue.
The Bill, proposed by the earlier government, had included petroleum products within GST. However, since states opposed it, the revised draft of the Bill provides for petroleum to be part of GST but zero-rated. GST is a value-added tax (it gives credit for taxes paid on inputs). Petroleum, being an input in various industries, cannot be kept out as it will break the chain.
However, a consensus has not yet evolved over compensation to states due to any loss because of goods and services tax. States demanded a five-year compensation from the Centre and its inclusion in the Constitution Amendment Bill. However, the Centre wanted compensation for three years through a mechanism outside the Bill.
The Centre gave a three-year compensation to states when they switched over to value-added tax (VAT), most from April 1, 2005. For the first year, the compensation was 100 per cent, for the second year, 75 per cent, and for the third year, 50 per cent. The goods and services tax compensation is also one of the terms of reference for the 14th Finance Commission, which is slated to submit its report to government later this month.
