The pandemic has brought to light that the GST compensation mechanism is not designed to address systemic risks
New Delhi: Finance ministers of the southern states find that the states have suffered considerable loss of autonomy in matters of taxation after the introduction of GST. The pandemic has brought to light that the GST compensation mechanism is not designed to address systemic risks, they felt.
"The direct taxation has been with the Centre and the states had some autonomy on the indirect tax front earlier. With GST, half of this autonomy has gone," said P.T.R. Palanivel Thiagarajan, finance minister of Tamil Nadu, addressing a Ficci's South India GST Conclave. "The ratio of direct and indirect taxes too has changed as the cess portion, which goes into the indivisible pool, has moved up. This has affected the state finances," he added at the virtual event.
According to Thiagarajan, India is the only country where so much power on taxation rests with the Centre. In countries like the US and China, both direct and indirect taxes are divided at the state, district and county-levels.
Finance minister of Kerala K. N. Balagopal too found that the GST has hurt the finances of his state. 'Kerala had an income growth of 14 to 16 per cent prior to GST and the first two years of GST implementation saw a stagnation of income growth and this was followed by a negative growth due to the pandemic," he said.
Taking up the case of petroleum products, Balagopal said the state government collects Rs 17 on a litre of diesel while the Centre takes away Rs 31 and a good portion of the Centre's incomes comes through cesses.
Thiagarajan was also against the practice of taking "hundreds of decisions on thousands of products" during the GST Council meeting, which does not provide much time for the state governments to put forward their views. He wanted the tax structure to be more simplified with fewer slabs.
He also said the fundamental design of compensation was not capable of adapting to the changes in the economy and systemic risks as has been evident by the problems faced during the pandemic. "The GST system is shaky. It is voluntarily sticking together rather than being integrated systematically,' he opined.
He also advocated the use of data and technology in the decision-making process.
Karnataka industries minister Murugesh Nirani said the GST collections in the past few months have been improving as the economy is coming out of the pandemic. GST has helped interstate movement of goods. There are issues in the system, but they can be fixed, he said.