The prospects for the goods and services tax (GST), India’s most ambitious tax reform in recent decades, have begun to look better. The Union government on Thursday decided to enhance the money demanded by states as compensation for loss of their tax revenue by Rs 1,000 crore to a total of Rs 13,000 crore, 65% of what they had asked.
This could be a potential breakthrough that can push GST, which has remained stalled for long. Bickering over compensation, mistrust of the Centre and the fear of loss of fiscal autonomy have, so far, held up this vital tax reform.
This is a positive development and indicates that the United Progressive Alliance government may have finally realized that it needs something more than the usual carrots to set the GST ball rolling. For their part, the states need to discard their myopic opposition now that the Centre is being more than generous.