GST’s future: Its framework is improving but its Council’s impact will depend on intent
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The 43rd meeting of the GST Council took place on Friday, the first one since October. A few big changes on GST levies on Covid-19 products were expected. The decisions however were underwhelming. Existing IGST concessions, the tax levied on inter-state commerce, for some Covid-related products were extended by three months. In a welcome step, Amphotericin B which is used to treat black fungus received an IGST exemption. Of greater significance is the decision to appoint an eight-member group of ministers, headed by Meghalaya’s CM Conrad Sangma, to study GST concessions for vaccines.
Last year’s economic stress exposed fault lines in the existing GST framework. It’s led to questions about whether a big change is needed. That would be akin to throwing the baby out with the bathwater. To improve the GST framework, a couple of smaller changes are needed. The first set of remedies which pertain to initial design flaws in GST are already underway. This is the last year when states will have to be compensated if their revenue doesn’t grow by 14% as it was a temporary measure. It may have been part of a grand bargain but it was always risky – nominal GDP has never grown 14% (2011-12 base).
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Another initial flaw was the inadequate technology backbone. It fell noticeably short of what was conceptualised. This is an area where there have been improvements. Therefore, we have positive developments to look forward to. But the efficacy of the GST Council will depend not just on rules or technology. It’s a constitutionally mandated federal body which can set the tone for overall federal engagement. There’s scope for improvement here. The Centre heads the Council and also has a veto on decisions. The ball is in FM Sitharaman’s court, for the GST Council to fulfil its potential.