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Stormy GST Council meetings expected in 2020 as govt scrambles for revenues

Dipak Mondal     December 30, 2019

The days of unanimous decisions in the GST Council meetings, it seems, are getting over with largely 'stormy' sessions expected in 2020 as the governing body is bracing for some contentious issues in the new year.

In the last Council meeting of the year on December 18, for the first time voting was conducted on an issue. The issue was related to uniform GST rates on government-run and government-approved lottery. Before this, all decisions taken by the GST Council were unanimous.

Finance minister Nirmala Sitharaman, who chaired the meeting, said every attempt was made to keep the tradition (of reaching a decision unanimously) alive. "Every attempt was made to convince the members of the council. But eventually, the Council was reminded that the rules allow voting and that tradition is not part of the rule book, and that rules should govern the working of the council."

It was Kerala finance minister Thomas Isaac, who insisted on voting on the lottery issue. The council had to bow to his wish.

Besides deviating from the tradition of unanimous decision-making, many non-BJP states took reservation to the Centre holding back compensation payments for more than four months.

Some finance ministers now say that the states agreed to sacrifice their tax sovereignty only because the Centre promised them to compensate for the losses. With the Centre saying that they do not have enough funds to compensate the states, they are equating it with sovereign default.

This could prove to be a thorny issue next year if the GST collections do not show remarkable improvement. Already some members are asking for a change in the structure of GST.

Contentious issues

As the Council now needs to find ways to enhance revenues through GST, next year could see the Council deliberating on hiking GST rates on certain items.

This could be a difficult task given the political and economical ramifications of the move. Some state finance ministers such as Amit Mitra of West Bengal and Manish Sisodia of Delhi have opposed any such move to increase rates. However, there are some, including non-BJP ministers, who see merit in it.

"Rationalisation of taxes, which will lead to greater revenue collection and less harassment to the tax returnee ,makes complete sense," says TS Singhdeo, minister of commercial tax, Chhattisgarh.

During the GST Council meeting on December 18, a committee of officers from state and Centre to look into possible ways of augmenting GST revenue presented its report. The report has some earthshaking suggestions such as having a two-rate structure with two slabs of 10 per cent and 20 per cent instead of the five at present and moving items from 5 per cent and 12 per cent to 12 per cent and 18 per cent slabs. It also suggested that rates of certain goods, which had been reduced from 28 per cent to 18 per cent, should be again hiked to 28 per cent.

These are difficult 'reforms' that may create sharp divide within the Council, and voting could be the last resort, as was evident recently.

A decision of the GST Council requires a majority of at least 75 per cent votes. Voting is done by a weighted average system, with the Centre having one-third weightage and states collectively having two-third weightage.

Missing Jaitley

The government must be missing late former finance minister Arun Jaitley, who according to many state representatives in the council, was the main reason why Council could reach consensus on all decisions taken so far.

Once talking to Business Today, Thomas Isaac, the Kerala Finance Minister, had said last year that "there has been a spirited give and take within the GST Council, all the more particularly due to the nature of intervention by finance minister Arun Jaitley".

Some members of the GST Council even said that had Jaitley been chairing the last GST Council meeting, voting would not have been required even on the issue of lottery.

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