Economy

Future revenues critical for finance panel: 15th Finance Commission Chairman

The GST structure should be made more revenue-friendly and stakeholder-friendly, said N.K. Singh.

The GST structure should be made more revenue-friendly and stakeholder-friendly, said N.K. Singh.   | Photo Credit: R.V. Moorthy

States are lulled into complacency by the assured compensation cess, says N.K. Singh

Future revenues are the most critical issue for the 15th Finance Commission, chairperson N.K. Singh said on Monday, adding that revenues from the Goods and Services Tax are the ‘elephant in the room’. He also hinted at the need to consider an incentive structure for States in order to encourage increased tax collections.

Mr. Singh was speaking to journalists after the fifth meeting of the Economic Advisory Council of the Commission. The Commission has submitted its recommendation report for 2020-21 to the Finance Minister and is now working on a ‘comprehensive’ report for the five year period of 2021-26, he said.

On Jammu and Kashmir, he clarified that the erstwhile State was being treated like any other Union Territory (UT) in the 20-21 report, and would receive grants directly from the Home Ministry, along with the other newly created UT of Ladakh.

The Council discussed macro assumptions for the Commission’s award period relating to real growth, the structural shift in inflation, and tax revenues and expenditure patterns at both the central and State levels.

The most critical issue was that of future revenues, especially GST revenues, said Mr. Singh, calling it the ‘elephant in the room’. The GST structure should be made more revenue-friendly and stakeholder-friendly, he said, adding that tax changes need predictability and certainty.

He suggested that while the 14% rate of GST compensation to States was mandatory under law for the initial five-year transition period, he would not recommend ‘a mechanical replication’ in subsequent years.

‘Race to the bottom’

Mr. Singh noted that while States have complained that GST revenues have been lower than expected, none of their Finance Ministers has raised protests, individually or collectively, in the GST Council of which they are a part. He said States had a collective tendency for a ‘race to the bottom’, accusing them of being ‘lulled into a state of complacency’ due to the assured 14% compensation cess. In the pre-GST era, State revenue officials would have worked harder to ensure that their tax collections met revenue targets, said Mr. Singh, suggesting that there may be a need for an incentive structure to encourage the State machinery to improve collections and tax compliance.

His comments come two days before the GST Council meeting slated for December 18, where States are expected to push the Centre on delayed payments from GST compensation cess. There has been a shortfall of GST collections so far this year.

While the government had budgeted for ₹6,63,343 crore in GST collections for 2019-20, only about 50% of the target has been collected in the first eight months.

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Printable version | Feb 28, 2020 3:02:52 PM | https://www.thehindu.com/business/Economy/future-revenues-critical-for-finance-panel/article30323236.ece

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