The Constitutional Amendment Bill for GST, passed by the Parliament, has been ratified by more than half of the States. The President has given assent to the Bill and has, thus, paved the way for implementation of the much-discussed GST. All the political parties except the ADMK supported the Bill in the Rajya Sabha. The ADMK opposed the Bill and staged a walkout in protest on the ground that GST, particularly the GST Council, would dent federalism and take away the States’ fiscal autonomy.
Article 279A of the Constitution provides for setting up of a GST Council by the President within 60 days of the commencement of the Constitution Amendment Act. The Central Government has notified the relevant Section 12 of the Act on September 10, which has come into effect from September 12. Hence, the President will constitute the GST Council by notification by November 11, 2016.
The GST Council will be chaired by the Union Finance Minister, and the Finance Ministers of all States or Ministers nominated by the States shall be its members. The Union Minister of State for Revenue or Finance shall also be a member. The States will choose a Vice-Chairman from among themselves. The council will decide the taxes, cesses, etc., to be subsumed in GST, the tax rate, threshold limit up to which a taxpayer will not register or pay tax, floor rate, goods or services to be exempted and, on the whole, any matter relating to the Goods and Services Tax. The council shall be guided by the need for a harmonised structure of GST and for development of a harmonised national market for goods and services. No doubt, the GST Council will be a powerful body in the federal system.
The decision of the council will be taken with a three-fourths majority present and voting. The Central Government has weightage of one-third votes cast, and all the States have a weightage of two-thirds of votes. Tamil Nadu and some other States are of the view that the States lose their autonomy in decision making of the council. If all the States vote in favour and only the Centre votes against then it will be like the Centre vetoing as a three-fourths majority required for a decision. Sales Tax or VAT is the major source of revenue for the States. Sales Tax or VAT contributes nearly 50 per cent of a State Government’s total revenue receipt. The State Government cannot even raise the tax rate if it wants to mobilise additional resources at the time of exigency or reduce the rate for the benefit of a section of the people without prior approval of the GST Council.
On the other hand, it can be argued that the Centre cannot also get through anything it wants without the support of the States. It has weightage of one-third, but for a decision of the GST Council the required vote is three-fourths. The Centre, in order to pass through a decision, has to have at least support of 12-13 States to reach a three-fourths majority. So, the Centre and the States are evenly matched; one cannot have its say without the support of the other. If the States lose their autonomy, so also the Centre loses with regard to taxation of goods and services.
In the 1990s when discussion began to replace Sales Tax with VAT, some also clamoured at the time that the Centre was infringing upon the States’ domain. Pursuant to the decision at the CMs’ conference held in November 1999, an Empowered Committee of State Finance Ministers was constituted to coordinate among the States for smooth implementation of VAT in the country. All the State Finance Ministers are members of the committee. Senior officers of the Centre as well as State officers are also members, and they attend the committee meetings. A decision in the Empowered Committee is taken with consensus after deliberation. VAT was implemented successfully in the country. The Empowered Committee is continuing and has been working for implementation of GST. All the decisions relating to GST are taken in the Empowered Committee after deliberation with consensus. Similarly, the GST Council, though a Constitutional creation, consists of the States, and it is hoped there will be no problem in taking decisions for the good of the nation. The GST Council will rather promote cooperative federalism.
(The writer is a Joint Commissioner of Commercial Taxes, Odisha. Views expressed are his own.)