All states have the autonomy to repair the GST rate and levy additional tax
Before the introduction of products and Services Tax, GST, inter-state trade was difficult within the country. Different goods were placed in several categories by each state and nuisance tax was levied on them at different rates. for instance, one state was categorized as kraft within the packaging material and therefore the other state in the paper. There was also a dispute on what proportion of nuisance tax to be collected on kraft paper? Every consignment and tax was collected on the state border. To beat this problem, the govt implemented the GST system within the entire country, during which goods are categorized in the same way across the country. Alongside this, the govt implemented GST at an equivalent rate across the country, in order that the traders don’t need to become involved within the accounts. Because the Mumbai entrepreneur sends his goods to Delhi, he won’t need to do the maths that at what rate tax will need to be paid in Delhi? so as to form the states accept GST, the middle had assured them that the revenue reduction they might get from the recovery in GST would be compensated for five years. It had been then believed that the GST amount would increase per annum at the speed of 14 percent. Unfortunately, the economy of our country has been slowing down for the last four years. Kovid sustained an important injury from above.
Center is under a heavy burden to compensate states
Far from a 14 percent per annum increase within the GST recovery, It had fallen flat before the Kovid crisis and is falling further after the Covid. Therefore, the middle is under a heavy burden to compensate states as per the reassurance. at the present, The states need to get an enormous amount of Rs 2.35 lakh crore as compensation, which the middle is unable to supply. Therefore, the central government has made a system that it’ll be transferred to the states by borrowing Rs 1.1 lakh crore, in order that the states meet their immediate needs, but who will need to pay interest on this amount is being discussed.
States cannot increase or decrease GST rates
The Center has got to compensate the states because the autonomy of the states to line the GST rate has been exhausted. They can’t increase or decrease the rates consistent with their needs. Earlier every state had an exemption that the state could collect nuisance tax consistent with its needs and therefore the nature of consumption. for instance, if the consumption of heaters in Himachal Pradesh and air conditioners in Tamil Nadu is high, Himachal could charge higher nuisance tax on heaters and Tamil Nadu on air conditioners, but within the current GST regime, states cannot make such changes. The matter before the states are that if the GST recovery isn’t enough, then they need no thanks to getting that quantity.
States will stop receiving GST compensation from the middle after completing five years in 2021
In 2021, five years of GST are going to be implemented and then the states will stop receiving GST compensation from the middle. Then the difficulties of the many states will increase. Their own revenue is going to be limited and no compensation is going to be received from the middle. They’re going to haven’t any weapon left to extend revenue, while the expenses will increase with time.
States should be empowered to vary GST rates
In this situation, states should consider giving the proper to vary the rates of GST. Many countries on the planet have this sort of facility. for instance, there are three sorts of nuisance tax levied in Canada – Central, State, and United. Only five percent of central GST is applied within the state of Alberta, Canada. In British Columbia, five percent GST and 7 percent state nuisance tax are collected. In Ontario, these two are combined and charged a 13 percent combined nuisance tax, Out of which five percent is within the center. Despite this variation of tax rates, there’s no difficulty in moving goods from one state to a different. There’s no inspection at the border of states. Sales are made by the vendor at the rate applicable to the buyer’s state. All kinds of tax are deposited within the central government account then the central government distributes it consistent with bills among states.
Bills are often made by levying GST at different rates
We can implement a similar system in our country. Bills are often made by levying GST at different rates on goods sold by a Mumbai entrepreneur to a merchant in Delhi or Lucknow. All states are often given autonomy to levy GST on goods consistent with their needs. By doing this, there’ll remain a market. All goods are often placed during a category like the current. There’ll be no disruption in the movement of products, but states will get autonomy to gather revenue as per their need.
Canada also gave autonomy to states in tax
Canada has gone a step further and given states autonomy in tax too. There, a 15 percent tax is levied by the middle on the taxable income of 49 thousand Canadian dollars. Additionally, tax is levied by the states. In Ontario, five percent additional tax is levied on taxable income up to $ 45 thousand, in British Columbia, five percent additional tax is levied on taxable income up to $ 42 thousand.
Every state in Canada has the autonomy to revise GST, tax.
In fact, every state has the autonomy to urge revenge not only in GST but also in tax consistent with its needs. We should always soon give states autonomy to line the GST rate and levy additional tax. This may reduce the burden of GST compensation in the middle immediately and therefore the crisis facing the states after 2021 is going to be averted. They’re going to be ready to solve their own revenue and therefore the federal structure of the country won’t be threatened.