Home/ Politics / Policy/  GST council will be one of India’s most powerful federal bodies

New Delhi: The enactment of the 122nd constitution amendment bill will lead to the setting up of one of India’s most powerful federal bodies that will oversee and administer the goods and services tax.

The GST council, the key decision-making body that will take all important decisions regarding the GST, will have representation from the central government as well as all the state governments.

The constitution of the council is such that both the centre and the states will be unable to take a decision without the other’s concurrence—a move that will promote cooperative federalism as it gives states a major say in the way indirect taxes will be administered across the country.

The GST will subsume most of the indirect taxes of the centre and the states including excise duty, service tax, value-added tax, entertainment tax, luxury tax and octroi.

This means that the GST council will oversee tax collections that at present exceed 13 trillion, according to a rough calculation of the centre and states’ tax collections from taxes on goods and services.

Also see: GST: Reordering of centre-state ties

Once the amendment bill receives Parliament’s nod and is ratified by half of all states, the council will be set up after the Union cabinet approves the proposal.

The GST council will be chaired by the Union finance minister with a state finance minister as deputy chairman. All the state finance ministers along with the minister of state for finance in charge of revenue at the centre will be part of this council.

The council will have the last say in finalizing the shape of the GST. It will finalize the tax rate under the GST as well as the revenue threshold for traders to be exempt from this tax. It will make recommendations on the taxes, cesses and surcharges that will be subsumed by the GST. It will also decide if and when petroleum and petroleum products will come under the GST’s ambit.

The council will also decide which goods and services will be exempt from the tax to protect the common man as well as the fine print of the sharing of administrative duties between the central board of excise and customs and the state tax officers.

Interestingly, every decision of the GST council needs to be taken with a three-fourth majority. While the central government’s vote will have a one-third weightage, the votes of all the state governments put together will have a two-third weightage, thus making a near-consensus between the centre and the states an imperative for any major decision.

The council will also have the final say on the mechanism to resolve disputes that may arise between the centre and the states or between states.

N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy, New Delhi, said the GST council will be a very powerful federal body.

“Irrespective of the political parties in power, this council will be very powerful as it will have representation from all states and the centre. So far, India has not seen the setting up of this kind of a body which will have powers to administer indirect taxes across India. To some extent, it also takes away the powers of the centre," he said.

“The council will face an uphill task in settling the bilateral conflicts which may arise because of some very basic differences, like those between a manufacturing and a non-manufacturing state," he said.

However, he sounded a note of caution, pointing out that states may not be prepared to make this transition.

“The recommendations of the 14th finance commission makes the centre withdraw from many of the activities assuming that all states perform in the most efficient way. But that is not the case," he said.

The 14th finance commission had recommended a sharp increase in devolution of taxes to the states from the central divisible pool to 42% from 32%.

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Updated: 08 Aug 2016, 03:31 PM IST
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