In this essay, I have tried to explain the role of GST council in relation to the state autonomy. This essay deals with the four major elements of the topic. Firstly, the historic perspective in respect to the Constitution of India, secondly a basic brief about GST and why such tax regime is needed. Thirdly, it discusses the GST council and how it deals with the question of state autonomy and lastly, the challenges before the council in upholding the state autonomy and fiscal federalism. This essay is surfacing the challenges before the GST council for its effective consideration and subsequent success of the whole GST policy.
The Constitution of India provides for the federalised financial arrangement between the Union and the States. The said tenet deals with two main aspects firstly, allocation of different taxation and secondly, distribution of resources and revenues. The erstwhile indirect tax system was filled with many complexities and inefficiencies such as stunted growth of common market, high costs for industries, jurisdictional issues, cascading-effect, obstructions to inter-state trade and exorbitant compliance cost among others. Subsequently, the Goods and Services Tax (GST) was implemented by the one-hundredth first amendment act to the Constitution of India as a destination-based, multi-staged tax to formulate one-nation, one-tax approach. It is aimed at uniformed, harmonized administration of the tax regime and solving the menace of tax labyrinth.
One of the major concerns in the implementation of GST is maintaining a right equivalence between the taxes at two levels of the government and harmonising the fiscal autonomy of both Union and State without compromising either one. While the fiscal autonomy relates to the Governments’ power of taxing any commodity or service of their choice and rate, the harmonisation is significant in the success of the GST regime as it directly deals with the administrative element of compliance, procedure, rules and infrastructure. As of now, the States are open to follow the union on harmonising the whole system but they appear to be reluctant when the issues of similar tax-rate, tax-base arise which might affect their fiscal autonomy. The very reason which makes this issue even more far-reaching is that any discrepancy or differences in the whole system between the two will only result in the failure of the GST policy.
The herculean task of designing and effectively implementing the GST is empowered to GST council which derives its origin and powers from Art.279(A), Constitution of India. The said provision enumerates that; the Council should be instituted within sixty days from the day of commencement of GST. Moreover, it shall consist of Union Finance Minister as its chairperson, Union Minister of State in charge of Revenue and Finance and the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government as its members. Additionally, states have to choose one member among themselves to act as a Vice-Chairperson of the council. GST council is delegated the power to decide upon all the nitty-gritty of GST like allocation of tax-base amidst the states, administrative framework, tax-rates, compliance procedure, model laws, any special provisions or exemptions in GST and in relation to States like Jammu&Kashmir, Manipur, Meghalaya, etc. or any circumstances dealing with natural calamity or disaster among others.
The council is also obliged to give recommendations in relation to the dates for applicability of GST on currently excluded sectors like alcohol, petroleum, natural gas, municipal taxes, etc… It is impetus to note, that the powers given to the council act as a guiding principle in discharging the functions analogical to the DPSPs in our Constitution. The recommendations made by the council to Union and State are not binding or coercive in nature and always leave an opportunity for the government to take the last call. Although, it may appear that the council has only recommendatory powers and the real autonomy lies in the hands of the Government, it may not be wholly true. It is significant to keep in mind that the council is a collective forum of all the specified ministers of finance and revenue of both Central and State Governments. In such a situation the council is equivalent to the biggest think-tank working in this regard so there is the slightest possibility of Government not considering the recommendations made.
Now, the real question arises, as to why the recommendations might pose a threat to the State autonomy and overall health of the nation’s fiscal development? The precise answer lies in the formulae provided under Art.279(A) for the decision making and the weightage of every particular vote. The said provision mentions that every decision of the council should be consented to, by atleast seventy-five percent of the weighted votes of the members present and voting. The vote of the Central Government will carry one-third weightage of the total votes whereas; the State Government’s vote will count as two-third weightage of the total votes cast in the meeting. Therefore, putting the said provision in perspective, the Central Government has an indispensable say in the decision making process of the GST council which in turn, is likely to get approved by the Governments taking cognizance of lack of alternative think-tanks in this field in our country as big as the statutory sanctioned institutions. Hence, in such scenario it will be a mere cakewalk for any Central Government to overlook any particular States’ concern and go on to take decision suitable to its policies and agendas. Moreover, in the current political set-up where the Central Government holds power in most of the States, it will be rather noticeable to see how the mechanism is built to settle the disputes between Centre-State or Inter-State, if any.
The challenges that GST council face upfront include the absence of any precedent platform which will make things difficult, people in unorganized sector will be harmed by this indirect tax reform as criteria based upon BPL/SECC will be no longer available, smaller States will have lesser say whereas the manufacturing States will also suffer due to the destination-based nature of GST, States will be more dependent upon the Centre in case of compensation, so on and so forth. To sum up, the biggest concern behind GST is the autonomy of the States which not only poses the biggest challenge to GST council but also intrinsically relates GST council and State autonomy. Thus, it is crystal clear to note that, if GST council successfully counter the problems posed similarly to what was done by Canada, Australia and the European-Union then GST might prove to be the biggest fortune-maker in the modern economy of India.
Author- Aman Gupta, BA.LL.B (Hons’) IInd year, National Law University Jodhpur
Compiled by GSTstreet for #GSTManthan