The proposed GST Scheme has created a sense of fear among states that they will lose their autonomy over levy of taxes. Presently, states enjoy total autonomy atleast in respect of state taxes. It is upto state governments to decide – what to levy, type of levy, rate of tax and how to tax.

Some state governments have expressed deep concerns that the introduction of GST regime will affect their fiscal autonomy. The reason behind this apprehension is that the design of GST is based upon a common base and an uniform rate across states. Also, after the implementation of GST, states would not have any power to make any unilateral changes.

The Task Force on Goods and Services has defined the full autonomy in the exercise of taxation powers. It would mean that the centre or state, as the case may be:

a) Retain the power to enact the tax;

b) Enjoy the risks and rewards of ‘ownership’ of the tax (i.e., not be insulated from fluctuations in revenue collections);

c) Be accountable to their constituents; and

d) Be able to use the tax as an instrument of social or economic policy.

We just cannot outrightly say that the states are not right as it is possible that some states may lose revenue with the introduction of GST. States such as Punjab and Haryana are not in favour of removal of purchase tax as it would be subsumed in GST and the two states would stand to lose very huge amount. Similarly, Maharashtra is not willing to let go of octroi. On the issue of input tax credit, some states like Tamilnadu is of the view that autonomy of the states should be protected and the states should have the right to decide whether to allow or disallow input tax credit or not.

It is right that some states would have a chunk revenue loss in the course of transmission to GST but they can be compensated. The Task Force has recommended a sum of Rs. 50,000 Crore for compensation in case of revenue loss to the states. But the states are making it a political issue. Some states in their recent budget presentations have complicated the indirect tax regime by adding layers to tax slabs and raised taxes with an eye on enhancing the extent of compensation. So, the compensation has become a matter of ‘grand bargain’ between centre and the states. Generally state governments use their fiscal policy as an instrument for the purpose of social welfare and sometimes for consolidating their vote bank. In fact, some of the state governments want to use the tool of taxation for maintenance of their vote bank.

As per the recommendation of the Task Force, the present Empowered committee of state Finance Ministers may, upon the introduction of GST, be transformed into a permanent constitutional body known as the Council of Finance Ministers. This council shall comprise of the Union Finance Ministers and all State Finance Ministers. The Union FM would be the chairman of this council. The council should be responsible for any modification in the initial design of the dual GST and regulating indirect tax system in the country. The initial design of the dual GST should be approved by the chairman and three-fourth of the State Finance Ministers. Thereafter, any change in the structure of the GST (both base and the rates) should be allowed to be carried out only if the chairman and two-third of the State Finance Ministers agree to do so. Consequently, neither the centre nor the state will have the authority to unilaterally make any change in the agreed design of the GST. Indeed, it wouldn’t be possible for the states to give up the nationally agreed model for GST, but the same will be true for the centre too.

There are always pros and cons of launching a new system. Same is right with the implementation of GST. Anything which matters is the overall impact of the GST regime on the market, economy and present indirect taxation system. As per Task Force report it will be fruitful for the Indian economy and common man in the long run. Hence, both the centre and the states will have to show endurance upto some extent for better tomorrow.

With the inclusion of the tax on services as well as tax on manufacture, the tax base of the state governments will increase significantly, whereas the taxbase of the centre on the other hand will increase only to the extent of tax on sales. Certainly, the widen taxbase would ensure more revenue for the states. Hence it is not right to say that the centre will be benefited more. State governments can achieve their objective of social and economic welfare through increased revenue and support inform of compensation by the centre. They shouldn’t politicize this issue.


The expected harmonious levy in GST regime across the states would lead to the unification of Indian market as the inter-state trade barriers would be removed. The uniform rate of tax, subsuming of major central and state taxes in GST, full set-off mechanism and roll-out of CST may reduce the cost of indigenously manufactured goods   and also of services. It would increase the competitiveness of Indian goods and services in the international market. One market would resolve many political and economic issues in a diversified country like India and the objective of co-operative federalism behind implementation of GST according to Union Finance Minister can be achieved.