India’s GST appeal process requires urgent reforms too
SummaryThe Supreme Court judgement underscores the importance of cooperative federalism but there are other GST reforms that need urgent attention such as setting up a GST appellate tribunal.
The Supreme Court’s verdict on the powers of the Goods and Services Tax Council is a landmark. It correctly interprets the 101st Constitutional amendment, which ushered in the era of a nationwide GST, as not explicitly prohibiting states from legislating on those very taxes. Specifically, the amended clause (a) of Article 279 does not override other Constitutional provisions, such as article 246, that empower states to legislate taxes. The GST Council, the apex court said, has persuasive powers, not coercive ones. The verdict is a reminder, if any was needed, that cooperative federalism calls for more and frequent dialogue at the highest level of the Inter-State Council, and not merely at the GST Council level. The Council is still an inadequate mechanism to balance sensitivities over the taxation rights of the Centre and states. But there are also various other issues involving federalism that can turn into fault lines. For instance, the exercise of constituency delimitation and a proposed increase in parliamentary seats in the light of India’s changing demographic profile both call for urgent attention. Another issue is the need to put a legislative cap on the Union government’s tendency to resort to using cess revenues that are kept outside the divisible pool of taxes. A third issue could be of the expanding use of central agencies in police matters, often leading to jurisdictional overlaps, and worse, contradictions. A fourth smaller but equally urgent issue is whether the Centre will extend the compensation formula for states to fill gaps in GST revenues. The states were assured a generous formula guaranteeing 14% revenue growth so as to get them all to sign-up for the new tax regime, but that assurance runs out in June 2022. What next, especially with signs of a slowing economy? Of course, the original formula was too generous to begin with and states bore little risk. The revised formula should phase out compensation from 100 to zero in, say, three or four years. Cooperative federalism, thus, is still a work-in-progress. Dialogue and trust building are imperative.