No veto for Centre on GST

States are threatening to derail the rollout of the goods and services tax (GST) from April next year, if the Centre infringes on their rights. Any further delay in implementing GST is bad news. However, states cannot be blamed for wanting to safeguard their powers of taxation. They must retain the flexibility to change GST rates if they want to.

The Centre should, therefore, drop the proposal to amend the Constitution to grant itself a veto on rate changes made by states. The proposal is tantamount to the Centre taking over the states’ fiscal powers. This is unacceptable in a federal structure. The concerns voiced by states, including Congress-ruled Andhra Pradesh and Haryana, over the proposed constitutional amendments, should be addressed. The rollout of GST can start only if states come on board, willingly.

In fact, the remarkable distance the federal polity has travelled on GST is thanks to the good work done by the empowered committee of state finance ministers, ably chaired by West Bengal’s Asim Dasgupta. Let that spirit of cooperative federalism prevail in the rest of the GST rollout as well.

The Centre and the states have already reached a consensus on a dual GST, comprising a central GST and state GST. The agreement is welcome. The three-year plan to move to a single rate of 16% — 8% each for goods and services — is also a pragmatic step. Improvements can always be made in the design. However, multiple rates are not necessarily inimical to GST — tax credits will be available across the value chain and on inter-state transactions. Value-added tax in the European Union works well without uniform rates in member states.

States that levy higher rates will only persuade manufacturers to locate themselves elsewhere. And states would restrain one another from a race to the bottom. A GST Council, with a majority representation from the states, would be a useful forum for the Centre and the states to collectively imbibe fiscal sense from amongst themselves. Democracy works on the strength of constant dialogue, and mutual give-andtake , not by enhancing the level of centralisation in an already over-centralised polity.