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GST Council’s role may widen to non-tax issues

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While implementing goods and services tax (GST) from 1 July will ease inflation pressures, it has also set in motion the idea of a new “horizontal” federal system where states engage with one another closely, state finance ministers said here.

In a panel discussion hosted by Mint here, members of the powerful GST Council disclosed that the federal indirect tax body has discussed reworking the basket of goods in the consumer price index (CPI) , the gauge that the Reserve Bank of India (RBI) tracks for its monetary policy, in order for it to reflect the new consumption and cost of living reality. An updated CPI will be useful in making adjustments in indirect tax, which affects the poor as much as the rich. The base year for CPI is 2012 at present.

“What the Central Statistical Organisation (CSO) needs to do is to evolve a new consumption basket to assess the real consumption,” said Jammu & Kashmir finance minister Haseeb Drabu. The two-day meeting of the 14th Council before the July rollout of GST, which started on Thursday in the state capital, approved the tax rates on 1,211 goods and is set to finalise on Friday what rate various services will attract, completing the GST framework.

Drabu said that the Council is emerging as a platform where finance ministers from 32 states and Union territories are taking up issues other than indirect taxation, which has given rise to the idea of lateral federalism.

Kerala finance minister Thomas Isaac said that the 3% borrowing limit for states need to be raised to enable financially healthy states to borrow more for development purposes. “If a state is meeting its revenue collection target, why the Union government should limit its borrowings, which is to be used for investing in public assets,” said Isaac.The idea of discussing issues other than indirect taxes within the Council received positive responses from other state finance ministers.

“We can develop consensus on that and can take on board the issues brought up by states. GST Council will open a new era of trust between states as well as between the Centre and the states. We have never seen such mutual cooperation between the states in any other body,” said Himanta Biswa Sarma, finance minister for Assam. Sarma added that the Council can be a foundation of new India and the best symbol of a federal polity. “States are now devoting time among themselves on economic issues, a phenomena which never happened before,” the minister said.

Krishna Byre Gowda, agriculture minister of Karnataka and a member of the Council, said the hiccups during the transition to the new indirect tax system can only be temporary. “We hope to see increased tax compliance. All signs at present point to that,” said Gowda.

Mint New Delhi, 20th May 2017

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