Since its inception in 2017, the Goods and Services Tax (GST) in India aimed to simplify the tax structure and create a unified market. However, seven years on, GST continues to be a source of friction between the Centre and state governments.
Revenue Shortfalls: States often express concerns over revenue losses due to the GST framework. The promised compensation for revenue deficits has been a contentious issue, with delays and disputes over the adequacy of payments from the Centre.
Source:- news 18
Tax Rate Rationalization: The multi-rate GST structure remains complex, with calls for simplification. States argue that frequent changes in rates lead to uncertainty and compliance challenges for businesses, straining their economies.
Source:- BBC news
Policy Decision Conflicts: The GST Council, intended as a collaborative platform, sometimes becomes a battleground for Centre-state disputes. States feel marginalized in decision-making processes, especially on matters like tax exemptions and rate adjustments.
Compliance Burdens: Smaller states and businesses often struggle with the compliance requirements of GST, which they claim are skewed in favor of larger economies and enterprises. This creates a perceived imbalance in the distribution of tax benefits.
Economic Autonomy: States are concerned about losing their fiscal autonomy under the centralized GST regime, which limits their ability to generate revenue independently and tailor policies to local needs.
Inadequate Compensation Mechanism: The expiry of the guaranteed compensation period exacerbates state grievances, as they seek a sustainable revenue-sharing model post-compensation era.
Frequent Legal Disputes: Disagreements over GST interpretations and implementation often escalate to legal battles, straining Centre-state relations and complicating tax administration.
As GST continues to evolve, addressing these frictions is crucial for fostering cooperative federalism and achieving the tax reform’s full potential.
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