Tamil Nadu Finance Minister Palanivel Thiagarajan has told the GST Council that the Goods and Services Tax (GST) requires a “deep, root and branch reform,” without which the tax regime’s very viability will be endangered.
On critical topics, the states and the Centre disagreed in the 43rd GST Council meeting, which was chaired by Finance Sitharaman on May 28.
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In his first GST Council meeting, the new Tamil Nadu Finance Minister, who was previously in the news for sparring on social media with his opponents, played with a straight bat. He pointed out a number of difficulties that have resulted in states being burdened rather than relieved as a result of the fundamentally Center-driven approach to tax revenue collecting.
“The Union’s seeming goodwill in raising the States’ devolution from the Divisible Pool of Taxes to 42 % 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.
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Thiagarajan argued that the Centre has gradually diverted money away from states, claiming that the gradual, but eventually complete, shift of all taxes on petrol from excise to cesses (almost Rs 50,000 crore) from the Pool of Divisible Taxes has resulted in 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 pointed out that the Centre’s reasons for lowering the ‘guaranteed’ rates of growth to be used for state compensation from the current 14% stood in stark contrast to the Modi government’s own Budget estimates of a 17% increase in Gross Tax Revenues.
All of this, according to the Minister, has created “justifiable rancour” in the relationship between the Center and the States.
Thiagarajan further noted that the current practise of bringing every single issue to the GST Council – a group with tens of members meeting once every three months without previous debate – makes policy making difficult. He believes that official level committees should meet more frequently.
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