Arun Jaitley reaches out to opposition to rescue GST

NEW DELHI (Reuters) - Finance Minister Arun Jaitley on Wednesday extended an olive branch to the opposition Congress party that has stalled the passage of a landmark tax reform in parliament, by offering to consider its demand for lower rates and a simpler structure.

The proposed goods and service Tax (GST) is India's biggest revenue shake-up since independence from Britain in 1947, as it seeks to replace a slew of federal and state levies, converting the nation of 1.2 billion people into a customs union.

But the Congress, which championed the measure during its 10-year rule, has refused to back what it calls a "flawed" GST.

It wants the government to cap the rate of GST at less than 20 percent, scrap a proposed state levy and create an independent mechanism to resolve disputes on revenue sharing between states.

Striking a conciliatory note on Wednesday, Finance Minister Arun Jaitley said the demand to scrap the state levy was "fair and arguable" and he was ready to compensate states if cancelling the levy resulted in revenue losses to them.

"This 1 percent (levy) issue is resolvable," he told a meeting of business chambers.

While the new tax is widely expected to add up to two percentage points to economic growth by supplanting a chaotic structure that inflates costs for businesses, it has been languishing in parliament since last December.

Jaitley also said standard rates under the new tax would be less than 18 percent, in a bid to address the Congress party's concerns that a higher tax rate would be inflationary, make Indian businesses uncompetitive and encourage tax evasion.

"India is now committed to have a very reasonable standard rate," he said.

A government-appointed panel, headed by India's chief economic adviser, had this month also suggested lower rates and a simpler structure for the tax.

Still, meeting the April 1 deadline for a nationwide launch of the sales tax appears optimistic.

Fresh developments in a three-year-old fraud case brought against the Congress party's chief and her son by a member of the ruling Bharatiya Janata Party (BJP) have derailed efforts to work out a compromise over the stalled tax reform.

Parliament's approval will set in motion steps towards rolling out the GST, but several more hurdles must be passed before it can be adopted.

(Reporting by Rajesh Kumar Singh; Editing by Sanjeev Miglani and Clarence Fernandez)