The Goods and Services Tax Council did well in granting the states 90 percent of the indirect tax collected from merchants and businessmen whose turnover does not exceed Rs 1.5 crore.
The states have to be as financially sound as the center for the federal structure of the country to be sustainable. This decision will particularly benefit Kerala with its multitudes of small-scale and medium-scale merchants. Finance Minister T M Thomas Isaac’s role in ensuring this benefit is laudable.
Kerala will also benefit from the decision related to collecting commercial tax from the marine borders up to 12 nautical miles from the shore.
States like Kerala which share commercially important marine borders have to have the rights to tax the marine trade, especially as it is pinning its hopes on the Vallarpadam Container Transshipment Terminal and the upcoming Vizhinjam Port to broaden its treasury revenues.
The decisions by the GST Council to grant most of the demands of the states is an indication that the body is not just a puppet of the central government.
The transition of India into a common market where the states cooperate in a combined indirect tax system rather than competing among themselves will be beneficial for Kerala, the land of the cash crops.
This will also be conducive for the development of value-added services.
We have to ensure that an investment-friendly ambiance is developed simultaneously. Red tapes have to be untangled and skill development should be focused on.
Our MPs should lobby to get a Kochi-Coimbatore industrial corridor included in the Union budget, as envisaged in the last Kerala budget.
Kerala will get an upper hand in revenue collection when the GST comes into effect. Kerala has only 2.75 percent of India’s population but the state accounts for 15 percent of the market for durable goods. Since the GST is imposed at the level of the consumer, Kerala will see an increase in tax collection.
The service sector in Kerala makes up 65-75 percent of the gross domestic product. The center had almost exclusive rights to tax the service sector. When that tax is shared with states, Kerala can expect to get higher tax revenue. Digital economy and cashless economy should progress in tandem.
The GST can be implemented any time of the year because it is a commercial tax. The GST Council wound up its meeting after deciding that the new tax regime could be introduced from July 1.
The council is expected to meet again on February 18 to give the final touches to the draft before it is enacted.
The GST Council had taken an array of significant decisions regarding tax rates in the meeting held on November 3.
Indirect taxes were classified into five slabs. Vital consumer goods that are used in measuring the consumer price index were excluded from the tax net.
The other slabs are 5 percent, 12 percent, 18 percent and 29 percent.
The central government wanted to share tax at a 50:50 ratio but the states insisted on having full rights on tax collection. The center and state governments finally reached an agreement on Monday after several rounds of failed talks.
The National Council for Applied Economic Research has estimated that the GST would broaden the tax base and increase tax revenue by 0.9 percent to 1.7 percent of the GDP.
The GST will enrich the central and state treasuries by developing India into a common market and plugging all loopholes in the collection of indirect taxes.
The new tax regime is intended to lessen the tax burden and provide better social and physical infrastructure to taxpayers.
The GST will combine existing central value-added taxes including central excise and customs duties apart from the service tax collected by the center and various value-added taxes collected by the states. The GST Council was formed after the 122nd constitutional amendment was passed in Parliament in September.
(The author is an expert in economic affairs)
