Without immediate reform, future of GST at 'grave risk', Tamil Nadu FM told GST Council

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The Goods and Services Tax (GST) needs a 'profound, root and branch reform', without which the very future of the tax regime will be at grave risk, Tamil Nadu Finance Minister Palanivel Thiagarajan has told the GST Council.

The 43rd GST Council meeting chaired by Finance Sitharaman on 28 May saw significant differences among the states and the Centre on key issues.

The new Tamil Nadu Finance Minister, recently in the news for sparring with his opponents on social media, played with a straight bat in his inaugural GST Council meeting. He pointed out a large set of technicalities through which the intrinsically Centre-driven approach to the tax revenue collection system has led to more burden rather than relief for states.

"The Union’s seeming goodwill in raising the States’ devolution from the Divisible Pool of Taxes to 42 percent has been largely offset by the expansion of Cesses (up 80 percent from 1.4 Lakh Crore INR in FY ’14 to 2.55 Lakh Crore in FY ’20)," he said in his speech.

Arguing that the Centre has slowly diverted money away from the states, Thiagarajan said the gradual, but eventually, almost complete shift of all taxes on Petrol & Diesel from Excise to Cesses, (almost Rs 50,000 Crore) from the Pool of Divisible Taxes, has led to states losing out on payments worth Rs. 20,000 Crore.

'Multiple audit reports from the Comptroller and Auditor General of India state the “absorption” of unused Cess funds running over a Lakh Crore of Rupee, including over Rs 40,000 Crore from the States’ Compensation Fund prior to FY 2020 alone," Thiagarajan stressed.

Thiagarajan said the Centre's arguments on reducing the 'guaranteed' rates of growth to be used for compensation to states, down from the actual 14 percent in the law stand in contrast to the Modi government's own Budget projections of a 17 percent increase in Gross Tax Revenues.

All this has introduced 'justifiable rancor' in the relationship between the Center and the States, the Minister said.

Thiagarajan also pointed out that the current process of bringing every single issue to the GST Council – a body with tens of members meeting once every three months without prior discussion debilitates policymaking. He said official level committees need to meet more regularly.