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What the article is about?
- Talks about the challenges faced by GST and way ahead to upheld the spirit of cooperative federalism.
Syllabus: GS-II Cooperative federalism; GS-III Indian Economy, GST,
GST and challenges:
- India’s goods and services tax (GST) will be five years old on July 1.
- Three significant issues —
- the breakdown of trust and cooperative federalism between states and the Union government,
- the expiry of the revenue guarantee that protected states’ revenues and
- the recent Supreme Court’s judgment highlighting that the GST Council’s recommendations are not binding on the states — form the backdrop to the next GST Council meeting.
- It is also likely to consider measures for stricter scrutiny and verification of high-risk tax payers, and take a call on the recommendation by the ministerial panel headed by Meghalaya Chief Minister Conrad Sangma to levy 28 per cent tax on online gaming, casino and horse racing.
GST Compensation:
- The five-year GST compensation period — the framework designed to provide certainty to state finances as part of the grand bargain struck between the Centre and the states to push through GST — is coming to an end. Fearing a collapse in their revenues, states have repeatedly asked for an extension of this mechanism.
- The all-India average shortfall between the protected revenues and the post-settlement gross state GST was 27.2 per cent in 2021-22, with only five states registering a revenue growth higher than the protected GST revenues.
- Alongside, the Council will also need to deliberate on the issue of raising tax rates, considering that GST collections have fallen well short of expectations.
- As per a study by the Reserve Bank of India, the weighted average GST tax rate has declined from 14.4 per cent at the time of inception to 11.6 per cent in September 2019.
- In comparison, the revenue-neutral rate was estimated at 15.5 per cent by the Subramanian Committee report.
Way Ahead:
- There are several options that the Council can explore, ranging from increasing the lower tax slabs to merging others.
- Reportedly, it is expected to take up an interim report on the issue of rate rationalisation submitted by the GoM headed by Karnataka Chief Minister Basavaraj Bommai.
- The consultative and consensual nature of decision-making that has helped guide the Council’s decisions so far must be adhered to.
- Addressing the contentious issues will, first and foremost, require bridging the trust deficit between the Centre and states.
- The spirit of cooperative federalism, often advocated by the ruling dispensation, must be upheld.
