Support for lower GST rate gaining traction

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By Nigam Prusty and Manoj Kumar

NEW DELHI (Reuters) - The idea of setting a relatively low rate for a new sales tax seemed to be gaining traction on Wednesday, as politicians of all stripes met to debate what would be the country's biggest tax reform since independence.

The proposed goods and services tax, or GST, will top the order of business at what is expected to be a rowdy winter session of parliament starting on Thursday.

Prime Minister Narendra Modi joined the all-party meeting and indicated that his nationalist alliance was ready to compromise, in a marked change of tone after it crashed to defeat in a bruising state election.

"GST is extremely important for the country. The government seeks cooperation for the smooth and efficient functioning of the parliament," Parliamentary Affairs Minister Venkaiah Naidu told reporters, quoting Modi's remarks to the meeting.

The bill has passed the lower house of parliament, but has been blocked in the upper house where Modi's nationalist coalition lacks a majority.

NO CALLS

The Congress party, even though it proposed the GST when it was in government, has led an opposition blockade against the measure and is in high dudgeon after its leaders faced a series of public attacks by the BJP.

"The PM has not called a single leader of the Congress party for discussion," the party's deputy leader, Rahul Gandhi, said in a speech to students in Bengaluru.

In addition to the standoff, Congress says the GST should be levied at a rate of around 18 percent - lower than sought by many federal states ruled by Modi's Bharatiya Janata Party (BJP). It also wants a proposed inter-state state levy to be scrapped.

Finance ministry officials say that a panel headed by Arvind Subramanian, India's chief economic adviser, could favour a revenue-neutral rate of around 18 percent on goods and services that could be broadly acceptable. It reports in early December.

"If petroleum and alchohol products are kept out, we could have a revenue-neutral rate of 18 percent under the GST," said a a senior government official involved in the policy process.

The measure requires a constitutional enabling amendment to be passed by both houses of parliament with a two-thirds majority, and subsequently by at least half of state legislatures.

Only then could the tax be implemented through a separate bill. The government hopes the GST can take effect in April 2016 - although time is tight.

Some states ruled by regional parties, including Bihar where Modi's BJP lost badly in an election this month, have assured their support for the bill but analysts doubt that tempers can cool quickly enough for progress to be made.

"It seems highly unlikely that major reforms will get enacted by the upper house," Moody's Investors Service said in a note to clients. "A failure to implement these reforms could hamper investment amid weak global growth," it said.

(Editing by Douglas Busvine & Kim Coghill)