27/12/2019 - Government Policies

IAS Parliament 5 years

KEY POINTS

· Compensation cess was introduced as a relief for the loss of revenue states would incur due to the implementation of GST.

· Since the states have given up their powers to collect certain taxes on goods and services, they were guaranteed a 14% tax revenue growth in the first five years after GST implementation.

· The compensation cess was to be provided to states till July 1, 2022. States’ tax revenue as of FY16 was taken as the base year to calculate this 14% growth.

· Any shortfall was supposed to be compensated by the Centre, using funds specifically collected as compensation cess.

· There are delays in passing on the money to the states which are due to slippage in collections under GST.

· Given that the states have a constitutional right to the compensation, they tend to be complacent in trying to collect GST revenue.

· The states should support the Centre in the implementation of GST to curb tax evasion. This will ensure that the government’s tax revenues—and, therefore, automatically that of the states—go up.

· For example, the decision, taken in the recent GST council meeting, to block the e-way bill facility on non-filing of two consecutive GSTR-1 returns should definitely go a long way in increasing tax compliance.

· Besides the effective implementation of the recent proposals of the GST council meeting, states should support the Centre on other critical proposals such as e-invoicing to curb the fraudulent availment of input tax credit.

· Also, states should take a cue from the Centre and introduce amnesty schemes under VAT/ Entry tax, so that any blocked revenues that are under litigation would also flow into their coffers. These measures will also help the states reduce dependency on the Centre.