Who should take GST responsibility – Centre or States?

state or central

The states of the Indian economy have a legacy of being hand held by the Centre. They look to the centre for financial support whenever a calamity strikes or there is a drought in the state. The thought is no different in case of the GST reform. The states are of the view that GST is the Centre’s baby. They also expect that all the problems will be resolved by the Centre. The state’s concern only lies in the revenue share which should not go down in any case.

The situation today is very different then what it used to be in the past. There is much more empowerment given to the states as was evident in the Budget this year, when substantial budgetary allocations were earmarked for the States. If one goes by the 14th Finance Commissioner’s report, 62 per cent of the country’s resources, including the tax revenues are with the states. Do the states still need the financial support and spoon feed from the Central government?

The intention of the government at the centre seems to be very clear. When scams were reported recently on the TV channels related to the states of MP and Rajasthan, the state governments looked towards the centre for the bail out. The Centre did not support or take the states in its stride. They asked the states to give suitable answers and face the problem head-on. The government at the centre is making the states responsible for their actions.

The perspective looks different when we look at the GST bill, but it is not. The three actions look like a hand holding exercise by the Centre. The first is the compensation to the states by the Centre in case they face the loss of revenue with the GST implementation. The government has agreed to keep alcohol and petroleum out of the GST ambit as they are major contributors to the state revenue. Also there is near agreement on the 1 per cent tax sop for the states to make up for the revenue loss on inter-state CST. Read on to find out why the story is different from what appears to the eye.

The Centre is actually resolving all the hurdles in the way of getting the GST bill passed in the two houses of the Parliament. They know and understand very well that the gains for the economy are much larger than the minor interests of the states. The states are going to feel the heat very soon. With the majority of their demands through, they not only have to ratify the bill by a 50% favourable vote, but also the onus of the implementation of the GST is going to on them.

The Centre is going to act as a watch dog to ensure that the process guidelines are followed and the broad framework of the GST is in place. The States still expecting the GST on a platter need to wake up from their slumber or else they would be steam rolled. It is high time they started work on the implementation aspects in the same manner as is being done by some of the leading private sector companies.

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