Bring in constitutional amendment on GST revenue-sharing proportion: Rangarajan

Prelims level : Service Sector Mains level : GS- III
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The Centre should bring in a constitutional amendment to fix the proportion of shareable taxes going to states – C. Rangarajan.

This would avoid repeated changes. Alternatively, we can allocate the entire collection of GST to states as is being done in Australia. This will replace the present formula.

Appoint committee

  • A committee could be appointed specifically to fix the revenue-sharing proportion, before bringing in a constitutional amendment to give effect to that. The 14th Finance Commission, had broken a new path in terms of allocation of resources.
  • One of the major recommendations had been to increase the share of tax devolution to 42% of the divisible pool. This was a substantial increase by almost 10%.
  • The balance in fiscal space thus remains broadly the same in quantitative terms, but tilts in favour of States in qualitative terms through compositional shift in favour of devolution and, hence, fiscal autonomy.
  • Dr. Rangarajan pointed out that the Indian Constitution had laid down the functions as well as taxation powers of the Centre and States.
  • The introduction of GST is an important step towards the reform of the indirect tax structure.
  • Some States bemoan the loss of sovereignty which is not true. The GST Council comprising all State Finance Ministers and the Union Finance Minister take the decisions on rates and several associated features. The Centre is also bound by it.
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