A turning point: The Hindu editorial on GST reforms

On Tuesday, the Center said it has released about Rs 87,000 crore of outstanding GST compensation to the states. The move marks a change in stance, as a month ago, the finance ministry indicated that the pending dues of states of over ₹78,000 crore for the last four months of 2021-22 will be released ‘as and when’ adequate GST compensation. Will be done. Cess is collected. As of May 31, the Center said it had around ₹25,000 crore in the GST Compensation Fund and paid the balance from its own exchequer to adjust from future GST cess on sin goods like cars. The stated intention for this changed strategy is eminently understandable – to help states manage their resources and ensure spending, especially diversification of capital, to pump-prime the economy, through 2022-23. happens smoothly. States are worried about revenue flow after the five-year GST compensation window ends this month. The hint that paying the dues without waiting for cess accruals will help cool the temperature of Centre-states fiscal negotiations, which flared up again after some concrete observations of the apex court on the nature of the GST Council’s recommendations .

For consumers, this could mean a further extension in the levy of the GST Compensation Cess beyond March 2026 – when borrowings made in the last two years were to be repaid to bridge the shortfall in cess collections. Another important implication is that in April and May, the gap between the revenue paid to states under the GST compensation agreement and the assured level has come down to Rs 5,000 crore per month, up from an average of Rs 19,600 crore in the previous four months. Is. Record GST collections of over ₹1.67 lakh crore in April undoubtedly helped, and though May revenue fell by 15.9% to ₹1.41 lakh crore, maintaining this two-month average poses fiscal concerns for both the Center and states. can be reduced. The government, which had termed April revenue (for transactions in March) as a reflection of a ‘sharp’ recovery, suggested that the end of the fiscal year boosted inflows, seeking to explain the fall in May. Were were The elephant in the room is ignored – high inflation, which the government had indicated could force a standstill in an imminent change of the GST rate structure, spurt GST revenues (over ₹1.12 lakh crore for 11 months). ) has been an important factor. Once this is accepted and the level of economic activity is assessed after the effects of inflation have been subtracted, the GST Council can make more nuanced decisions on the next steps to reform the still-young tax system and sustain revenues. Is. It should begin by assessing whether the GST rate restructuring should be postponed due to fear of high inflation, or refocus on low inflation while widening the tax net and easing compliance .