Heirarchy GST Doesn’t Need

Context: With the difference between the rich states and the poor states in the decision making process of the GST council, the argument for special dispensation for the few who contribute more is a problematic idea.

Other dimension to the higher revenue collection in a few states:

• One may note that such states enjoy locational or geographical advantages, being mostly coastal and immensely suited to the needs of trade and distribution as also manufacturing.
• In this context, one may recall that the disadvantage to such states on account of lower availability of certain vital minerals like coal and iron ore was undone by the principle of freight equalisation resorted to in the years following Independence.
• This contributed, in no small measure, to the development of such states.

Argument against the idea of special dispensation towards rich states

• Undermines the welfare nature of the Indian state:
  • While the Pareto principle holds in almost every field, be it tax yield, distribution of income or wealth, but this, by itself, is no occasion to argue for any special dispensation to a “few” whose contribution is seen to be of a relatively higher order.
  • For this would open the gates for elitist arguments such as special rights for bigger taxpayers, unequal voting rights in elections and preferential treatment for a select few.
• Rich states too are dependent on other states:
  • Most (approximately 50% at the aggregate level and much higher at the state level) of such values are of an inter-state nature.
  • In other words, most supplies made from any producing state are consumed elsewhere, and the revenue in such a situation naturally and rightfully accrues to the destination state.
• Absence of Centre’s preference based on some formula:
  • The quantum of IGST revenue that is “settled” to any state is directly related to the returns filed in that state and the cross utilisation of credit exhibited in such returns;
  • There is no “formula” as such for “transfer” of revenue collected by the Centre. Instead, such “transfers” are directly relatable to consumption.
• Sanctity of ‘one state one vote’: The principle of “one state one vote” is sacrosanct and inviolate and is also the norm in every civilised discourse.
  • Even in the UN, every country has one vote. The taxation federation in Europe also works on this principle.