{"id":223003,"date":"2023-01-18T20:40:40","date_gmt":"2023-01-18T15:10:40","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=223003"},"modified":"2023-02-20T19:02:58","modified_gmt":"2023-02-20T13:32:58","slug":"a-case-for-reassigning-gst-to-states","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/a-case-for-reassigning-gst-to-states\/","title":{"rendered":"A case for reassigning GST to States"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cA case for reassigning GST to States\u201d <\/strong>published in The Hindu <\/strong>on 18th January 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS3- Indian economy and mobilisation of resources<\/p>\n

Relevance<\/strong>– Issues related to fiscal policy<\/p>\n

News- <\/strong>The article explains the fiscal imbalances between centre and states. It explains the need for assigning the entire GST to states.<\/p>\n

What are some facts about GST?<\/strong><\/h2>\n

The Union and State governments concurrently levy GST on commodities with 50% as Central GST and 50% as State GST. There is an Integrated GST on inter-State trade<\/strong>, so that 50% of it goes to the final destination State.<\/p>\n

The GST is a harmonised tax<\/strong> on commodities across the country. Individual States have little power to unilaterally change this tax. The GST Council<\/strong> gives the Union government a veto to thrust its preferences on the States.<\/p>\n

What are some statistics and facts about fiscal imbalances between centre and states in recent times?<\/strong><\/h2>\n

The simplest empirical measure of vertical fiscal imbalance<\/strong> is the formula- \u2018VFI equals one minus the ratio of the State\u2019s own revenue to own expenditure\u2019.<\/strong><\/p>\n

If this VFI ratio is zero, the States have enough own revenue to meet their own expenditure and there is no need for financial transfers<\/strong>.<\/p>\n

If we look at the data for all the States over the periods of the last three Finance Commissions<\/strong>, the VFI ratio shows an increasing trend. For the latest period of 2015-16 to 2020-21, the ratio was 0.530. It means that only 47% of the States\u2019 own expenditure was financed by their own revenue in that period.<\/p>\n

In this period, four major changes took place. First, the divisible taxes<\/strong> of the Union government expanded from two to all the Union taxes. It enlarged the revenue base<\/strong> to be shared with the States.<\/p>\n

Second, fiscal responsibility legislation<\/strong> was implemented to constrain the fiscal deficits<\/strong> of the States. States directly borrow from the market subject to limits imposed by the Union government.<\/p>\n

Third, the Union Planning Commission<\/strong> was dissolved. It led to the withdrawal of Plan grants<\/strong>. Fourth, GST was introduced in 2017.<\/p>\n

These changes have considerably altered the States\u2019 revenue structure. States have little revenue autonomy<\/strong> and are more dependent on the Union government.<\/p>\n

What is the way forward to reduce fiscal imbalances between centre and states?<\/strong><\/h2>\n

CGST and the excise duty on petroleum products<\/strong> should be assigned to the states. There is a need to bring all commodities, including petroleum products, under GST.<\/p>\n

The Union government should continue to collect IGST<\/strong> only to settle revenue on a destination basis<\/strong>. This will ensure harmonisation of GST<\/strong> across States.<\/p>\n

GST shall continue as a tax determined by the GST Counci<\/strong>l. However, the veto power <\/strong>of the Union government should be removed. This may once again require some constitutional amendments<\/strong>.<\/p>\n

Commodity taxation should be moved to State List II of the Seventh Schedule<\/strong> of the Constitution, with a rider that harmonisation of commodity taxation<\/strong> should be maintained.<\/p>\n

The tax base of the GST, namely consumption<\/strong>, is not equally distributed among the States. It creates horizontal fiscal imbalance<\/strong> among the States. Therefore, the Union government should effect equalisation transfers<\/strong> to address this issue of horizontal fiscal inequality<\/strong>.<\/p>\n

What will be the impact of these measures?<\/strong><\/h2>\n

The assignment of excise duty on petroleum products to the States will hasten the process of integrating taxes<\/strong> on petroleum products into GST. It will remove the cascading effects <\/strong>of the current excise duty on petroleum products.<\/p>\n

The reassignment of tax will increase the tax revenue <\/strong>of the States. This will also improve accountability<\/strong> of the States to their people on fiscal matters.<\/p>\n

VFI will come down. All the States\u2019 own expenditure can be financed by their own revenue resources. The need for assigning share in Central taxes and grants in aid<\/strong> does not arise.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cA case for reassigning GST to States\u201d published in The Hindu on 18th January 2023. Syllabus: GS3- Indian economy and mobilisation of resources Relevance– Issues related to fiscal policy News- The article explains the fiscal imbalances between centre and states. It explains the need for assigning the… Continue reading A case for reassigning GST to States<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10498],"class_list":["post-223003","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/223003","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=223003"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/223003\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=223003"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=223003"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=223003"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}