ECONOMY | Revitalizing the spirit of cooperative federalism in finding solutions to economic woes

ECONOMY | Revitalizing the spirit of cooperative federalism in finding solutions to economic woes

-By Subash Deb

Since the BJP-led NDA government came to power at the centre, it has left no stone un turned in leveraging the potential of competitive cooperative federalism in its pursuit towards achieving inclusive development. NITI Aayog, which replaced the 64-year-old planning commission, has come across as the fine template for competitive cooperative federalism. It in fact, suggests the intention of the government to empower state governments by increasing their participation in policy formation and share of central revenues. All the more so as it drives collective approach on matters of national interests.

In a multi-party parliamentary democracy, the viability of cooperative federalism is a challenging task in light of conflicting interests that arise from multiple aspirations. However, the government of the day must be credited for establishing the spirit of cooperative federalism in the process of making one of the biggest tax reforms – GST (Goods and Services Tax) – since India got her independence.

The enactment of the 122 constitutional amendment bill led to the formation of the GST Council, and thereby creating a collective forum of the Union and the States where every decision related to the GST is taken with absolute unanimity. In other words, both the Union and the states will be unable to take a decision without the other’s concurrence.

Small Businesses Can Smile Now

The new GST law required both small and large enterprises to migrate to the online system of paying taxes. With the advent of GSTN (Goods and Services Tax Network), it became compulsory for businesses to file invoice and tax returns online at least once a month. However, the online system of registration, payments, refunds and returns has proven to be a major pain for most SMEs as they lack technical expertise to deal with electronic systems, and therefore the need for hiring intermediaries at a price arises which only adds to their compliance costs. Moreover, for small traders whose computer literacy is nil and who have no access to internet, the GST has descended upon them as a digital shock.

Nearly 100 days after the rollout of the GST, the government has convened the 22nd GST council meeting on 6th October 2017 to primarily address the compliance concerns of small companies and traders, and liquidity concerns of exporters. In the true spirit of cooperative federalism, both the centre and the states have come together to unanimously decide on the GST issues so as to bring relief to small and medium businesses. Chaired by Union Finance Minister Arun Jaitley, the council meeting made important decisions relating to the GST compliance rules largely benefitting SMEs, as well as improving liquidity conditions of exporters whose money got stuck in the GST process.

Undoubtedly, the 22nd GST council meeting has meticulously considered the implementation experience of the last 100 days to conjure up better GST rules for small businesses. The recommendation for invalidating the monthly submissions of returns and moving over to the quarterly filing of returns for small and medium businesses with annual aggregate turnover of up to Rs. 1.5 crores is a move to facilitate the ease of payment and return filing. The centre and the states have also recommended raising the cap of composition scheme from Rs 75 lakhs to Rs 1 crore so as to reduce the compliance burden for small businesses. For special category states, the cap has been raised to Rs 75 lakhs from Rs 50 lakhs.

In addition, there are good reasons for exporters to smile as a major relief package has been announced for them to allay their fears over refunds and tax credits, absence of which has crippled their cash liquidity so far.

Now small service providers who operate across multiple states aren’t required to register with the GSTN. For service providers whose annual aggregate turnover is less than Rs 20 lakhs are exempted from obtaining registration. The GST council has also cut tax rates on 27 common use items besides other measures including the creation of a proposed e-way wallet facility from the next financial year.

It may be recalled that on 1 July 2017, India switched over to the all-new tax system replacing over a dozen central and state levies, and also unifying its $2.3 trillion economy into a single market. With the advent of the GST, the byzantine tax regime that had been in existence since independence came to an end.

This historic milestone in the domain of Indian taxation was a result of “collective efforts”, and therefore the government of the day as well as its predecessors merit kudos for their respective roles in the forging of GST ever since it was first mooted in 2000 by the Atal Bihari Vajpayee government.

The Narendra Modi-led BJP government deserves admiration for demonstrating utter responsiveness in dealing with the GST issues that have hitherto affected the SME sector badly. The decision to convene the 22nd GST council meeting to address the GST hassles came on the back of severe criticism from various quarters that held the ruling government responsible for adding to the woes of the already cash-strapped SME sector that contributes significantly to the growth of India’s economy by generating the largest employment in the country. The government has been under tremendous pressure to take corrective measures ever since the June quarter of 2017-18 reported an unexpected drop in India’s economic growth. Most experts lay the blame on the government for this economic mess as they believe that demonetization and shoddy implementation of the GST are the two black-swan events that have hit the Indian economy hard. Be that as it may, we can still trust what World Bank President Jim Yong Kim has to say about the current economic slowdown in India. President Jim called it an “aberration,” caused by the GST implementation, which would correct itself in the coming months. Last but not least, revitalizing the spirit of cooperative federalism in dealing with all economic, social and political woes will actually go on to strengthen the federal structure of our country. Let us all come together on issues of national interests! Can’t we?

The writer can be contacted at subashdeb@gmail.com


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