But a one-size-fits-all approach may not be the new mantra for deciding the compensation formula, with officials suggesting it should be graded and encouraged for those making extra efforts to improve compliance and collections.
Overall, at least a dozen states have failed to take any initiative to increase collections, a major issue Nirmala Sitharaman And his team in the finance ministry is going to factor in state finance ministers proposing a new mechanism.
The pre-pandemic experience in state GST revenues has shown wide variation and was pointed out by the 15th Finance Commission. “Assuming all states to be equal in terms of GST revenue growth, the assurance of 14% growth rate for five years, despite their extensive revenue growth experiences in the past, has created another significant complication in federal finances,” it said. noted it. in its report.
It is believed that some states, such as Himachal Pradesh, Uttarakhand, Jammu and Kashmir and the states of the Northeast, may need help as the central sales tax was a major source of revenue. Though northeastern states like Arunachal Pradesh and Nagaland have seen high growth rates in recent months, officials believe some of it will come down, given that the growth is on smaller bases. “In the days of VAT they did not have the requisite administrative set up, which has now come into force and is helping them in recovery,” an official said.
Conversely, it has been observed that some states have been lax with collection initiatives, going to the extent of diluting the enforcement regime, which is often a deterrent to tax evaders.
While states have been claiming that the design is flawed and there are implementation issues, officials at the Center oppose that argument. “There is a wide variation between states, which is entirely about how you address the issue of piracy and enforcement,” said one official. While the new formula is being debated in Lucknow, it is clear that consumers will have to pay the cess for several more years to ensure that the state does not “fall off the cliff” after the current compensation regime ends in June.
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