Day 8 – Q.1 How well have the concerns raised by the states during the implementation of the Goods and Services Tax law been addressed? Critically examine.

  • IASbaba
  • December 5, 2022
  • 0
GS 2, Indian Polity, TLP-UPSC Mains Answer Writing
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How well have the concerns raised by the states during the implementation of the Goods and Services Tax law been addressed? Critically examine. 

वस्तु एवं सेवा कर कानून के कार्यान्वयन के दौरान राज्यों द्वारा उठाई गई चिंताओं को कितनी अच्छी तरह से दूर किया गया है? समालोचनात्मक जाँच कीजिए।


Candidates can start the answer with highlighting recent issues raised by states such as GST compensation and then write steps taken by centre also as per the demand of question highlight how challenges still exists.


Recently at consultation meeting for the Union Budget of 2023-24 issues of the federal fiscal framework were flagged by the states. Also asked financial help by extending GST compensation period.


Steps taken by centre to resolve such issues for states:

  • More economical empowerment: Power to tax services, which was hitherto with the Central Government only, will boost revenue and give States access to the fastest growing sector of the economy.
  • GST Compensation pending dues released: The Centre released an amount of ₹17,000 crore to states and UT in November 2022, towards the balance GST compensation for the April-June period.
  • Expansion of the tax base: As states will be able to tax the entire supply chain from manufacturing to retail.
  • Enhancing Investments: GST being destination-based consumption tax will favour consuming States. Improve the overall investment climate in the country which will naturally benefit the development in the States.
  • Increase Compliance: Largely uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales.
  • Building Synergy: The functioning of “PRAGATI” to review the progress of developmental efforts has also generated the requisite synergy between the Centre and states.

Still many challenges/concerns unresolved for states:

  • The GST compensation period expires in June 2022, and despite multiple requests from the States, the deadline has not been extended.
  • Cesses a cause of worry still exists; it reduces the divisible pool of resources and thus the states’ share of the revenue.
  • Despite states demand GST precariously held together by the loose thread of “compensation guarantee”, under which states surrendered their fiscal powers in return for guaranteed revenues.
  • The capacity of State tax authorities, so far used to taxing goods and not services, to deal with the latter is an unknown quantity.
  • SCGT and CGST input credit cannot be cross utilized and manufacturing states are losing revenue on a bigger scale.

Way forward

  • The gradual widening of the fiscal capacity of the states has to be legally guaranteed without reducing the Centre’s share.
  • Union Government to merge the cesses and surcharges into the basic rates of tax so that the States receive their legitimate share in devolution.
  • It is important to utilise experiences from global economies that have implemented GST before us, to overcome the impending challenges.
  • The recommendations of the GST Council “should be a product of a collaborative dialogue involving the Union and States”.
  • The rationalization of the GST structure into three slabs by merging two existing slabs is on the cards and should be done soon.

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