The Goods and Services Tax Council, established under Article 279A (1) of the amended Constitution, is a joint forum of the Centre and the states. The establishment followed the passing of the Constitutional (122nd Amendment) Bill by both Houses of Parliament in 2016 and subsequent ratification by over 15 Indian states. The Council is chaired by the Union Finance Minister and includes other finance or taxation ministers from each state.
The Council’s primary function is to make recommendations on GST-related issues such as goods and services subject to or exempt from GST, model GST laws and deciding various rate slabs of GST. An example of the Council’s recent decision-making includes a recommendation to impose a 28 % GST on casinos, online gaming and horse racing.
Recent Developments Impacting the GST Council
The Supreme Court’s decision in May 2022 stated that the GST Council’s recommendations are not binding, marking a critical development. As per Article 246A of the Constitution, Parliament and state legislatures have simultaneous power to legislate on GST. This ruling has been welcomed by states like Kerala and Tamil Nadu, which believe it grants them more flexibility in accepting Council recommendations.
An Overview of the Goods and Services Tax (GST)
Introduced through the 101st Constitution Amendment Act, 2016, GST is one of India’s most significant indirect tax reforms. Featuring the slogan ‘One Nation One Tax,’ GST replaced indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax, etc. The tax structure under GST includes Central GST, State GST and Integrated GST (IGST), with tax slabs set at 5%, 12%, 18% and 28%.
The Significance of GST
GST plays a critical role in creating a unified national market for India, which can boost foreign investment and the “Make in India” campaign. Moreover, GST increases tax compliance, discourages tax evasion, brings about greater certainty in the taxation system and reduces corruption. Furthermore, the tax regime fosters the secondary sector by encouraging export and manufacturing activities, resulting in increased GDP and gainful employment.
Existing Challenges with GST
Despite its benefits, GST faces several challenges, including multiple tax rates, new cesses, a trust deficit between the Union government and the states, and the exclusion of half the economy from the GST purview like petroleum, real estate, and electricity duties. Additionally, the complex nature of tax filings and higher tax rates on certain essential items pose further challenges to the tax regime.
Way Forward for Improving GST
Addressing these issues requires bridging the trust deficit between the Centre and the states, upholding the spirit of cooperative federalism and refraining from resorting to cesses and surcharges outside the shareable pool of revenues. Furthermore, there is a need to start discussions on decentralising GST and giving states powers for direct taxation. Such steps will contribute significantly towards bolstering states’ confidence and fiscal freedom.