Finance commission chief Singh blasts frequent tinkering with GST rates

N K Singh, Chairman, Finance Commision

Fifteenth finance commission chairman NK Singh on Friday called for major changes in the GST structure, including reducing the cumbersome compliance procedures and also doing away with frequent rate changes, to improve collection.

He also pitched for a rationalisation in Centrally- sponsored schemes, and blamed the government for not clearly defining the role of the Niti Aayog, which as of now does not have any powers to take financial decisions.

The comments from the chief of the commission that decides on the revenue distribution between the Centre and the states, come amidst concerns about the continuous fall in GST collection which has not touched the targeted Rs 1 trillion every month barring one month.

"If you do not simplify GST, you will be defeating the very purpose and intention of why we took this far reaching step," Singh told SBI chairman Rajnish Kumar, while delivering the LK Jha memorial lecture at the RBI headquarters here this evening.

"The cumbersomeness of compliance is one of the important factors why I believe that there is a huge scope for improving the revenue realisation from GST," he added.

"Equally, I do believe the frequency with which the rates have been changed is unbelievable. You are playing with the rates of taxation, these are serious issues and these are not rates of mutual accommodation," he said.

However, he noted that despite all these issues, we have seen one of the fastest GST adoption rates and credited same to the prime minister and the then finance minister Arun Jaitley, but stressed on the need to go back to the drawing board urgently.

The changes sought will minimise the cost of compliance, make the system less onerous and finally lead to an improved trajectory of revenue collection.

Singh said the commission has visited nearly all the states in the run-up to the preparation of its report and that many of them have "complained that the fiscal autonomy has been circumscribed by GST".

"I think the GST Council needs a restructuring in terms of what is good, not only in terms of the negotiating strengths of one state versus the other, it needs to function in a manner so that the rims of India are not really seriously compromised," Singh said.

Noting that there are many as 211 Centrally-sponsored schemes on which the government spends over Rs 3.32 lakh annually, he said ideally these are subjects to be typically handled by the states like employment.

"We need a far more credible policy on rationalization of the Centrally-sponsored schemes and the Central outlays than have been possible so far...this becomes more relevant because the role of the Niti Ayog which is a think-tank and not a financial body, remains somewhat unclear in the financial sphere," Singh said.

He noted that prioritising "political expediencies" over "constitutional misgivings" has ensured that the states haven't complained against such "transgressions".

Singh also hit out against off-budget borrowings by both the Centre and the states saying such instances are "clever" ways to side-step financial reporting requirements.

There is a need to rethink the fiscal partnerships to catapult growth, and not look at it merely as a way to garner more revenue from a particular state.

"Living in a deceitful world of one-upmanship either among the states or between the states and the Centre will only detract our ability to realise our growth potential," Singh warned.

Meanwhile, in the speech that comes months after the Centre abrogated the provisions of Article 370 and the further division of the erstwhile Jammu & Kashmir, Singh seemed to support the power of the Centre to reorganise the states.

"The units of our federation have undergone multiple transformations since 1947. This is because Article 3 empowers Parliament to create new states. While such a provision can be seen as giving the Union too much powers, it has arguably been central to holding us together since it allows us to evolve and respond to sub-national aspirations," he said.

"India is an indestructible Union of destructible states," he concluded.

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