• UGI USER
  • Jul 27, 2023
  • 21 Likes
  • 0 Comments

Q. Assess the performance of the GST Council as a constitutional body vested with powers to take all major decisions relating to Goods and Services Tax.

Approach:

  • Briefly explain the GST council and its constitutional mandate.
  • Highlight the positive changes brought by it.
  • Mention some key issues associated with it.
  • Conclude with a brief way forward.

Answer: 

As per Article 279A of the Indian Constitution, the Goods & Services Tax (GST) Council is a joint  forum of the Union and the States. It is chaired by the Union Finance Minister and has membership  of Finance Ministers of all the States. It makes recommendations to the Union and the State  governments related to various changes to be made in the GST. These changes include subsuming  different kinds of taxes, cesses and surcharges levied by different federal organs. It recommends  goods and services that may be subjected to or exempted from the GST. It also recommends model  GST laws, principles of levy, special provisions for some states among others.

The GST Council has brought about following positive changes since its inception:

  • Facilitated cooperative federalism: The GST Council has continually worked towards cooperative federalism, by ironing out differences between states with maturity and without  It has also established Grievance Redressal Committees at Zonal/State levels.
  • Rationalization of tax rates: GST Council has enabled that multiple state VAT laws and other barriers among states could be lifted and there is consensus on the tax rates to materialize GST  as a ‘One Nation One Tax’ regime. Further, tax slab/rates have been rationalized and many  items kept within the high tax bracket (18-28%) were reviewed and classified as necessities and  not luxuries.
  • Institutionalized examination: The Council has also recommended the formation of a Group of Ministers (GoM) to study the revenue trend, analyze the reasons for structural patterns affecting  revenue collection in some states and other issues related to GST.
  • Simplification of compliance burden: This has been done through steps like extending the due dates of filing tax return, introduction of simplified return filing system, nationwide E-Way  bill etc.
  • Addressing sector specific concerns: The council has worked towards providing relief measures and boost to individual sectors. E.g. It increased the registration threshold limit as  relief for the MSME Sector.

However, the following issues were observed:

  • The tax collections missed budgeted targets and caused severe fiscal distress to both the Union and States in FY19 and FY20.
  • A blanket five-year compensation guarantee to the States does not incentivize them to make tax efforts of their own. It also does not make an allowance for an economic downturn, such  as the one caused by Covid-19.
  • The GST compensation cess (levied on sin and luxury goods) is appropriated by the Union. Higher GST rates and delayed GST refunds have hampered the export sector.
  • Petroleum, alcohol and electricity are still outside the purview of GST.

Recently, a RBI Panel has recommended setting up of a federal body on the lines of the GST Council  to implement reforms in the agriculture sector. Earlier also, demands were raised for a GST Council like mechanism to oversee public expenditure. This highlights the significance of the GST Council as a role model for federal governance in India. Going forward, it should focus on further reforms such as deferred tax payments, reduction in tax rate, waiving or reduction of late fees and interest  etc. which are still required.