Multiple issues have reduced the effectiveness of GST and eroded the constitutional rights of states, writes Kerala Finance Minister TM Thomas Isaac with his co-authors in a new book.
The implementation of GST has been affected by a plethora of problems. Some of the major issues deserving mention are:
a) Despite the sharp reduction in the incidence of tax burden under the GST regime there was no reduction in the Maximum Retail Prices (MRP) but for a few commodities. The reduction of tax only resulted in windfall gains for corporates and traders at the expense of the consumers. The anti-profiteering clause (Section 171 of the CGST act, 2017) was not implemented along with GST and this left the consumer who was exploited by certain traders without any statutory forum to voice grievances. The state governments forwarded complaints to the Centre but no effective action could be taken. The general perception has been one of increase in the tax because the GST rates printed on the invoices were invariably higher than the erstwhile VAT rates.
b) The IGST Act, 2017, (section 18) provided that States would get their SGST share only when a dealer having inter-State trade pays output tax, files return and claims credit for input tax. In other words, IGST (which is CGST + SGST) which is paid in inter-State trade remains with the Centre which acts as a clearing house for States which are destinations of supply of goods and services and only subsequently trickles down to the States. This results in the States’ share in IGST remaining with the Centre for a considerable time, creating liquidity problems for the States and forcing them to borrow money and pay interest while their dues are available as interest free ways and means for the Centre. IGST Act, 2017, needs an amendment to provide for provisional apportionment of the States’ share without elapse of time.
These statutory and implementation issues have reduced the effectiveness of GST, which has also eroded the constitutional rights of the States. If the present costs of erosion of States’ taxing powers originally envisaged under the Constitution, more than outweigh the expected revenue gains and enhanced spending capabilities, the tenets of this tax reform would become unacceptable in the medium run. This would in turn lead to a call for revising the framework and implementation procedure of GST.