Context
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The 43rd meeting of the Goods and Services Tax (GST) Council was held on May 28. Representatives of 31 States and Union Territories are expected to attend.
Key Challenges of Goods and Services Tax (GST) Council
- The GST Council was mandated to meet at least once every quarter, but it had not met for two quarters, ostensibly due to the pandemic
- States are dependent on GST collections for nearly half of their tax revenues. However, in the wake of economic slowdown the compensation to states have not been steady.
- Centre imposed sudden and stringent policy conditions to grant approval to States for extra borrowing in the middle of the pandemic last year.
Source: The Hindu - There is a feeling of betrayal over how the States have been forced to pay a much higher price for COVID-19 vaccines than the Centre.
- States are wary of the Centre’s duplicity in levying cesses that garner significant revenues for the Centre without sharing them with the States.
- GST was to deliver enormous economic efficiency gains, improve tax buoyancy and collections, boost GDP growth and usher in greater formalisation of the economy.
- The 15th Finance Commission report formally acknowledges that GST has been an economic failure that did not deliver on its early promises.
- Economists point to the multiple rates structure, high tax slabs and the complexity of tax filings as the problems underpinning India’s GST.
- GST has endured so far primarily because the States were guaranteed a 14% growth in their tax revenues every year, which minimised their risks of this new experiment and compensated for their loss of fiscal sovereignty. This revenue guarantee ends in July 2022 and there is increasing demand from States to continue this compensation regime even after 2022.
- The States paid a huge price for GST in terms of loss of fiscal autonomy.
- The promised economic gains are invisible, and India’s federalism has been ruptured.
- GST in today’s politically acerbic, hate-ridden and divided India is an unviable and unworkable proposition.
Conclusion
- The catchy phrase ‘cooperative federalism’ was introduced into India’s political lexicon to justify the transition to GST in 2017. Sadly, like other catchy phrases such as ‘Minimum government, maximum governance’ and ‘Make in India’, this too has turned out to be hollow.
- Cooperative federalism has a larger meaning beyond just fiscal federalism. It also entails cooperative political, administrative and governance federalism between the States and the Centre.
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