16 Jun 2022

GST faces the biggest challenge after a Supreme Court decision!

Several countries are pressuring the ruling government to extend the program to continue compensation for losses of the Goods and Services Tax (GST) or to risk frustration in efforts to simplify the framework. It poses the greatest challenge right now in changing the country's most important tax for decades.
Finance ministers from Kerala, led by the opposition West Bengal and Chhattisgarh, said they would raise the issue at a GST Council meeting this month.

Tamil Nadu and Bihar will also support this, according to people familiar with the matter, who have requested anonymity as they are not authorized to speak to the media.

Countries have dared to take office after the Supreme Court ruled last month that GST Council decisions are not binding. If the Council, led by Finance Minister Nirmala Sitharaman, does not agree, states may increase revenue from other taxes that violate the principle of international equity. This is not a tug-of-war between the institution and the provinces, ”said TS Singh Deo of Chhattisgarh. “The vision is to ensure an increase in revenue and if it does not happen with the council it will have to come from other sources. This should be 'one nation one tax' and not 'one nation one budget.'

Under the GST Act, the government must compensate the provinces for five years up to June 2022 for sacrificing their tax-generating power and obtaining their support for applicable taxes. The program has cost $ 103 billion this season. Many provinces want this to continue as it has become an important source of income, funding and infrastructure development.

Top government secretaries in Tamil Nadu and Bihar did not respond to e-mail requests for comment. A spokesman for the Treasury Department did not immediately respond.

Compliance with provincial demands could be financially difficult at a time when Asia's third-largest economy is facing rising prices as recovery recovers sharply following the collapse caused by the epidemic. The government's $ 26 billion anti-inflation plan threatens to increase inflation this year to 6.8% of gross domestic product, from 6.4 percent, according to analysts at Nomura Holdings.

The government has paid GST compensation until the end of May in the provinces as the June payment is only pending.

Last year, the Council extended the provincial compensation tax return and said the money raised would be used to cover the amount of compensation borrowed during the violence.

Power Balance

The debate over GST compensation comes as the government and a few opposition-led provinces are increasingly divided over issues ranging from the distribution of Covid subsidies and farm regulations to regional languages.

The court's decision on GST goes a long way in changing the situation.

"The GST has reduced the powers of the provinces and now this directive will give freedom to countries," said KN Balagopal, Kerala's finance minister. "We will really press it down for the next GST meeting."

Finance Secretary Tarun Bajaj said the GST Council had helped make business easier and that all decisions had been made so far, local media reported.

Provinces, especially those led by opposition parties, have argued that their concerns about the loss of revenue following council decisions or property taxes were not taken during meetings. They were at odds with Modi's management as they struggled financially.

Deo from Chhatisgarh said the provinces could consider the imposition of certain property charges if the federal government did not agree to extend compensation payments.

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