The End Of The Road For India’s GST?

Context: India’s Goods and Services Tax (GST) regime stands on the fragile ground in the backdrop of current political, economic and institutional concerns.

Key issues in the GST regime

• Prolonged delays: GST Council was mandated to meet at least once every quarter, but it had not met for two quarters, ostensibly due to the pandemic.
• The economic is political: The need for a meeting to determine tax revenues for States is evidently a political decision. For e.g., while the opposition is demanding to convene, the members from the ruling party didn’t deem it necessary.
  • Striking a balance among diverse interests of India’s numerous parties in a larger political climate of spite and suspicion to arrive at a uniform tax policy for the nation is a near impossibility.
• Failed to achieve desired outcomes:
  • Unsolved initial problems: Multiple rates structure, high tax slabs and complexity of tax filings.
  • The 15^th Finance Commission report formally acknowledges that GST has been an economic failure that did not deliver on its early promises.
  • It was supposed to deliver enormous economic efficiency gains, improve tax buoyancy and collections, boost GDP growth and usher in greater formalisation of the economy.
• Erosion of trust and trustworthiness: The spirit of cooperative federalism is attacked through the Centre’s political vendetta witnessed towards opposition ruling state, which has led to a narrow view of cooperative federalism
  • Cooperative federalism failed to move beyond fiscal federalism and define itself as political, administrative and governance federalism.
  • Thus, phrases like ‘cooperative federalism’, ‘Minimum government, maximum governance’ etc., turned out to be hollow.
  • E.g. Prime Minister imposing draconian lockdown without consultation or play favourites with critical oxygen supplies during an emergency reeks of non-trustworthiness.
• Subjected to the vagaries of elections: While the non­-BJP group contributes a higher share of 60% of overall GST revenues and accounts for 63% of the country’s GDP.
  • With elections to another seven States due next year, these numbers could change dramatically.
• Ending of compensation benefits: The guaranteed compensation of 14 % growth in tax revenues is set to end in July 2022, risking their taxation benefits.

Conclusion: The end of India’s grand GST experiment seems inevitable unless there is a radical shift in tone and tenor of India’s federal politics, backed by an extension of revenue guarantee for States for another five years.