Economic logic behind Goods and Services tax

The goods and services tax proposed by the government of India is going to replace all the other taxes and it will be the destination tax that is paid at the end. The discussion of GST was started by BJP government in 2000 by forming an empowered committee headed by Asim Dasgupta, former finance minister of West Bengal. Why is the central government desperate to pass the bill of GST? To understand this, we need to go and study the past, when we got independence in 1947.

At the time of independence, our federal structure needed to be strong enough and there was a need for robust power in the hands of central government. If it was not like that, today there might have been a Kashmir separated from our boundary and a Khalistan (state of Punjab) as our bordering nation. The monetary policy of the country is also controlled by the central government and once in every five years, an economic body called the finance commission is formed, that recommends on how much power can be given to the state governments in levying the taxes.

The 14^th Finance Commission gave more power to the state government in tax devolution. It decentralized the power, which gave the individual states an authority to levy taxes. For example, vehicle from Karnataka needs to pay road tax if it is roaming in Maharashtra even though both the states are under one central government. Now, central government came up with goods and services tax which will replace all the existing indirect taxes. Indian government had proposed GST rate of 27% which is the highest in the world.

In order to facilitate one country - one market, GST came into picture. It’s not about the autonomous position of state but treat India as one. Several state governments are opposing and fearing about GST because they will lose the power to levy the taxes and suffer revenue losses. For example, the government in the state of Maharashtra is ruled by same political party that rules the center but still it is opposing the bill. Implementing GST will be the country’s benefit and government of India is telling the state governments that center will collect the final tax and give the state more than that what the state currently gets from individual taxes.

                                                                                                        

Sunil Subrahmanyam

Batch 2017
Symbiosis Institute of Telecom Management