Answer:

GST, by subsuming an array of indirect taxes seeks to simplify tax administration, improve compliance and eliminate economic distortions in production trade and consumption.

However, it is argued that it erodes states’ autonomy in matters of taxation:

♤ According to constitution states have complete autonomy to levy sales tax, which broadly formed 80% of their revenue. This will be replaced by a uniform GST rate.

♤ GST Council:

o A constitutional body (not the states) will decide a single rate of CGST and SGST

o The centre wields veto -1/3rd representation in the GST Council where any decision has to have 3/4th consensus

o all states have exactly one vote –no distinction between manufacturing and consuming states

♤ Elected states’ govt laid emphasis on social spending (welfare expenditure), which

was financed by new levies. GST will take away this power.

♤ Panchayat and city finances have not been discussed in GST

On the other hand, GST seeks to enrich the cooperative and competitive federalism:

♤ It makes states significant partners in decision making national level macroeconomic management.

♤ GST brings plentiful revenues and significantly higher GSDP with lower inflation. This is done by increasing compliance, enhancing tax base.

♤ It eliminates ‘cascading’ of taxes which in turn lead to cutting production costs and

making exports more competitive.

♤ It will ensure check on tax evasion.

♤ GST seeks to increase aggregate revenues that will create a new type of autonomy (through largely untied fiscal devolution).

Owing to the diverse advantages of introduction of GST on the lines of international best practices, various mechanisms have been built within the bill to address such issues arising out of it:

♤ GST Compensation: the Centre is committed to compensate for loss of revenue due to shift from origin based to consumption based taxation structure, for 5 years on the recommendations of GST Council.

♤ GST Council: a joint forum of Centre and States, which would function under the chairmanship of Union Finance Minister. It will make recommendations on important issues like tax rates, exemption limit, threshold limits etc.

♤ In case of alcoholic liquor for human consumption, States would continue to levy the taxes presently being levied, i.e., State Excise Duty and Sales Tax/VAT.