The central and state governments seem to have realized that certain anomalies have crept into the GST regime. Reports suggest that the central government will sit down with the states to find solutions to some of the issues that have arisen over the course of the implementation of this major tax reform in the country. These talks between the governments in the states and the centre will be held once the Union Budget is presented on February 1, 2020.
There are primarily two main issues. One is that the GST Council in its own wisdom kept reducing the GST rates applicable on several items in its sittings and this led to an overall fall in revenue. The other is that the agreement by the centre to compensate the states for the loss of revenue due to the introduction of a uniform rate of tax across the country is now under threat since there is not enough money in the kitty to pay the states.
One of the major worries the states had prior to the implementation of GST was this loss of revenue and the lack of avenues with them to raise revenue at will. Before GST came into being, the states had the liberty to raise the tax rates on goods at the state level.
There are certain structural flaws as well that need to be corrected. There are business segments where the assesses are paying more taxes for the inputs than the GST on their output. This results in their adjusting in their dues to the government and the actual GST collected going negative.
There is the Fifteenth Finance Commission’s report that needs to be discussed between the states and the centre on the devolution of funds. All these are happening in the midst of a slowdown in the economy and that itself leads to many discussions and decisions being postponed for a better atmosphere to return.
The talks between the state governments and the centre will be quite comprehensive and cover all relevant issues. The solutions arrived at should be able to hold for at least a medium term of 3 to 5 years.