Keen to secure support of the Congress for the GST bill, the government is set to drop the proposal to allow up to 1% additional levy by manufacturing states amid indications of the principal opposition party not being averse to including the GST rate in a legislation other than the Constitution Amendment Bill. 

The two developments have triggered hopes of a consensus emerging on the landmark reform bill at a time when a panel headed by Arvind Subramanian is expected to suggest 18% as the revenue neutral rate for GST. 

The rate is also seen to be moderate compared to the 27% level talked about earlier, something that may again be politically acceptable. 

Although the government is firm, contrary to insistence of the Congress that the taxation rate cannot be written into the Constitution Amendment Bill, it seems to be ready to walk more than halfway to get the Congress on board. In fact, a panel set up under chief economic adviser Arvind Subramanian, is also learnt to have accepted former finance minister P Chidambaram's proposal for the mechanism to resolve of disputes which might arise after GST has been rolled out. 

The former finance minister had visualized the GST Council or a mechanism conceived by it as the dispute resolution form.

 

Government sources feel despite support from several regional parties, the Centre would not push the bill unless the Congress is on board. In the absence of consensus, even one state can block the roll out of the tax reform measure and the government is unlikely to take a risk on such a key legislation unless the Congress signals its support, said a senior source in the finance ministry. The current session has seen several regional parties — Trinamool Congress, JDU, BSP, AIADMK and BJD — expressing their support for the constitutional amendment legislation. Although the SP, which had initially supported the GST, now termed the legislation as "unfair" to UP, the government does not see chief minister Akhilesh Yadav's stance as cast in stone. They feel that the UP government can be persuaded to support the legislation if they are assured of higher compensation. 

The Congress party has been insisting that its three demands be met before they signal any sort of support for the Constitution Amendment Bill, which will pave the way for the most ambitious indirect tax reform since Independence. 

Prime Minister Narendra Modi had invited Congress president Sonia Gandhi and former PM Manmohan Singh to his residence on Friday to discuss the party's demands over tea. Although a breakthrough eluded the meeting, the government and the Congress party agreed to remain engaged over GST bill. 

The NDA government has identified implementation of GST as a key priority of its economic reform agenda.