Jaitley Open to Meet Gandhi to End India Sales Tax Impasse

Updated on
  • Modi government will consider changes that strengthen GST
  • Congress opposed to talks until `social situation improves'

Arun Jaitley, India's finance minister.

Photographer: Xaume Olleros/Bloomberg

Finance Minister Arun Jaitley is open to meeting top opposition leaders, including Rahul Gandhi, to resolve a parliamentary deadlock over one of India’s biggest reforms since the early 1990s.

Narendra Modi’s government is ready to compromise on some demands from the Congress party that don’t imperil the overall structure of the proposed goods-and-services tax, Jaitley said in an interview Monday. He called the opposition “obstructionist" for blocking a vote, and for portraying the government as intolerant toward minorities.

“We are willing to speak to any of their leaders,” Jaitley said at his office in the sandstone British-era buildings that sit at the center of power in New Delhi. Asked if that includes Rahul Gandhi, Jaitley said: “Certainly. Why not."

“I would try and persuade them to have it cleared now, as soon as possible, because it is going to be one of the most important reforms in India," he said.

April Target

The tax would whittle down more than a dozen state levies to create a single market among the country’s 1.2 billion people for the first time. Modi has set an April 2016 deadline for implementation.

Congress is opposed to talks on the tax, referred to as GST, until Modi’s government “creates a cordial atmosphere," K.V. Thomas, a member of the lower house of parliament for the party and a former minister, said by phone.

“For any economic development, the social situation should be stable," Thomas said. “They have created a vicious situation in the country purposefully."

Congress leaders rallied in Delhi on Monday to protest what they say is rising intolerance in India after a man was killed over eating beef. Modi told a gathering the same day that Congress was “enacting drama" and had no right to talk about intolerance because it presided during anti-Sikh riots in 1984 that left about 3,000 people dead.

Multiple Levies

The growing discord doesn’t bode well for passing the GST. Under India’s current system, its 29 states operate like different countries. A truck carrying goods from the south to the north needs to pay different taxes at multiple locations, including the factory gate, state borders and retail points.

India is ranked 157 of 189 nations on the ease of paying taxes. It takes 243 hours each year to make the 33 required payments, which can eat up as much as 61 percent of profits, according to World Bank data. That compares with about 177 hours for 11 payments in high-income OECD countries, amounting to 41 percent of profits.

If the current constitutional amendment allowing the measure is passed, it needs to be ratified by more than half of India’s states. Then parliament must pass another bill to implement the GST. The overall rate, which would vary for different goods, would be set by a newly formed GST Council.

Congress is opposing a compromise reached earlier this year that would allow states to receive a levy of as much as 1 percent on products made in their territory. That would last for about two years after the GST took effect.

Compromise Openness

“Since it is a constitutional amendment and it will stand the test of time, I don’t want to create an architecture which is faulty, and some of their suggestions could hurt that architecture," Jaitley said when asked if he would compromise. “But if there is something which doesn’t hurt the architecture but it strengthens the GST architecture, I am certainly willing to look at it."

The main opposition party, which originally proposed the GST in 2006, has disrupted parliamentary proceedings to prevent a vote on the amendment. Jaitley said the bill would have passed if Congress allowed a vote: “The merits are unquestionably conceded to by all."

Jaitley said that he’s willing to speak to anyone who disagrees with him.

“Anyone in the government can speak to people -- there’s no difficulty at all," he said. “So far, we have been speaking to the more accessible section of the Congress Party."

— With assistance by Sunil Jagtiani, and Bibhudatta Pradhan

(Updates with Doing Business ranking in 10th paragraph.)
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