Special treatment under GST for few states is a bad idea

Synopsis: The issue of special allowances under GST on Covid-19 relief products is being projected as a Centre versus states issue.

Introduction

This is an attempt to gain political benefit on an issue of human and national importance. The structure and design of GST are being questioned. Already settled debates on the decision-making process in the GST Council are sought to be re-opened.

• The structure and design of GST and its basic features were unanimously adopted and endorsed by Parliament and each of the state legislature. All sections and clauses were discussed and recommended by the GST Council after complete consent.
• No state was given special privilege during consensus building. This shows maturity in the debates of the Council. Having come so far, any attempt to reopen some of the fundamental issues should be criticized.

Special treatment under GST is a bad idea

Arguing for any special treatment to states under GST whose contribution to the GST pool is higher is a dangerous idea. This could lead to arguments such as special rights for bigger taxpayers, unequal voting rights in elections etc.

• Firstly, it is not right to say that the GST collected in a state represents the revenue of that particular state. The tax deposited by a taxpayer in a state under the GST mechanism is a function of the value of supplies made by such taxpayer. Most of such values are of an inter-state nature.
  • Most supplies made from any producing state are consumed elsewhere and the revenue in such a situation naturally and rightfully adds to the destination state.
• Secondly, it is false to say that under GST; most of the profits is collected by the Union and is given to the states on the basis of some formula. The major chunk of IGST revenue that is given to any state is directly related to the returns filed in that state.
  • This payment also comprises tax on supplies “destined” to that state, as shown in the returns of such suppliers.
• Thirdly, the reason why some states have a higher revenue collection is because such states enjoy locational or geographical advantages. They are coastal areas and hugely suited to the needs of trade and distribution as also manufacturing.
  • However, such states have a disadvantage in the account of the lower availability of certain vital minerals like coal and iron ore. This was undone by the principle of cargo equalization implemented in the years following Independence.
• Fourthly, the argument of unequal transfers of central receipts is also untrue. Such transfers are made for improving horizontal fiscal imbalances in a federation.

The conclusion
The principle of “one state one vote” is intact and is also the norm in every civilized discourse. Even in the UN, every country has one vote. If this principle is questioned, it would lead to the undoing of the force that binds this great country. Special treatment under GST would only hamper the true spirit of cooperative federalism.

Source: The Indian Express

Federal Structure of Indian Polity