College- Jamia Millia Islamia, Zakir Nagar, New Delhi
Impact of GST on revenue of States after 5 years
The Goods and Services Tax (GST) was implemented by the government of India on 1/7/17. India joined the likes of Australia, Brazil. The Government claims that it is a historical tax reform since independence. It was hailed by Flipkart’s chairman as a step which will financially unite the country. This claim can be countered positively and negatively. Positive effects are that trade barriers will be abolished and smooth transfer of good can happen very easily. India has adopted a unique system in which we have multiple tax rates slab in place of a uniform tax rate. The system of GST has a lot of negatives as well like: Through article 279(A) which calls for a GST Council. In the GST Council, we have 29 states and Union Government. Each state has one vote. The states have two third of votes with Union Government having one third of votes. The Finance Minister is the chairman of GST Council with states being represented by their finance ministers. Changes can happen through GST Council meeting frequently and passing the regulation with a majority. This is a flawed voting system because:-
(1) Veto Power of State
The Union Government has 33% votes in the Council. It can very easily pass any changes it wants in the multiple tax rates. With 6-7 states more joining with the Central Government the resolution will be easily passed by the council setting aside the needs of other concerned states.
(2) Fiscal Autonomy
In India we follow a system of Quasi-Federalism. States and Government both jointly work together. Until now the states had the opportunity to impose taxes on sale of goods to meeting their needs. Now with this system the government has ignored fiscal autonomy of states without listening the needs of the states involved.
(3) Spending of State
Until the States were conscious of their spending but know they will spend recklessly as each state will get same of revenue from the Central Government.
(4) Destination Tax
The GST is a destination tax. This means that it can be beneficial for only consumer driven states like Bihar but disastrous for states like Tamil Nadu. The manufacturing states like Tamil Nadu will only get levy amount on goods which is not sufficient.
(5) Needs of the States
Different states have different needs. States like Bihar will have more needs on social parameters like Providing Education, Healthcare and developed states like Maharashtra will try to develop more industries and manufacturing of goods to increase more industrial outputs. Their objectives are completely different.
I think that the GST is a huge benefit for the Large Corporations to transfer their goods from one place to another. But the problem with GST is that it has multiple tax slab rates for different products unlike the uniform tax rate in other countries where it has been implemented. India is a vast continental country with Gujarat having different needs and Tripura having different needs. This Bill takes away the extra revenue collected by the states. The success of this GST depends upon the moderate rates but if the rates are extreme then it is bound to fail. Some financial experts are of the opinion that Empowered Committee of State Ministers with VAT was adequate. The World’s biggest Capitalist Economy U.S.A. doesn’t have the system of GST. USA follows the system of federalism. US like India is a large continental country with each region having different needs and wants. In the US each state has its own Sales Tax like we had VAT Tax.
In the past we had an legislation which killed the development of states which was the Freight Equalization Act. According to this act, all the states would get equal mineral resource to have fair competition among states. This act proved to be a disadvantage to Eastern India like Bihar, Jharkhand, and Odisha as the industry failed to develop in these mineral rich areas.
In the long run, this tax would be disastrous for the states and federalism in India. This Tax undermines the parliament of India as it can unilaterally pass the resolution with veto of 33% without having any discussion in both houses of parliament for making adequate changes in the GST Tax rates.
Manufacturing states would be in a disadvantaged state as they will suffer losses due to GST. Before the implementation of GST, the finance minister of Tamil Nadu wrote to the Prime Minister that the state would suffer a loss of Rs 9,270. This Tax would be negative in nature.
It might be great for large corporation but not for political and economical of our great nation!