Re: [se-decn] QUERY: Impact of GST on local governments. Advice.

[Anand P Gupta and S.Narayan]

Moderator’s Note: We are posting the responses of Anand P.Gupta and S. Narayan to the Query on impact of GST on local governments. Further responses are welcome. Regards, Tina Mathur.

 

 

Anand P. Gupta, Economic Management Institute, New Delhi

 

State Finance Commissions can play an extremely important role.  They can set some reasonable benchmarks in terms of the quality and quantity of public goods that need to be delivered at the PRI and ULB levels, assess the gaps, estimate the financial and other resources that will be required to take care of these gaps, and recommend strategies for mobilizing them.

 

 

S. Narayan, Patna

 

I think elected members of PRIs need to be made aware of if not trained in GST.  Inclusion of  all PRI institutions at each levels is desirable in order to make GST successful  and for the success of  GST participation of all membera of PRIs is desirable.

 

 

Original Query:

 

From: K.Gireesan [mailto:gireesank...@gmail.com]
Sent: Thursday, August 24, 2017 12:21 PM
To: Decentralization Community <se-...@solutionexchange-un.net.in>
Subject: Re: [se-decn] QUERY: Impact of GST on local governments. Advice. Reply by 31 August 2017

 

Dear members,

 

I would like to draw your attention towards an issue affecting the status, functional autonomy, financial autonomy, decentralized planning and delivery of goods and services of the Local Governments as a sequel to the launch of Goods and Service Tax (GST) in India. 

 

In line with the intent of the Union Government towards Co-operative Federalism, a GST Council was formed consisting of the representatives from the Union Government and the State Governments/UTs. The Council had its deliberations on several occasions and on some issues like 'Lottery', it had thread-bare discussions for several hours running into multiple meetings.

 

I would like to put forward some of the concerns raised and discussed in an academic exercise taken up by the 'Local Government Observatory' operated by the faculty and students of the Department of Local Governance, Rajiv Gandhi National Institute of Youth Development on 21 August 2017 in which 13 students/faculty of the Institute took part.  The discussion was on 'GST and its impact on Local Governance'.  The points that emerged in the academic discourse are as follows:

 

• There was no representation of Local Governments (both rural and urban) when the GST Council was constituted. Though we were aware of the operational difficulties of involving representatives of LGIs from different parts of the country, a nominal representation could have been included. The timing of such an initiative is all the more crucial as the nation is celebrating '25 years of Panchayati Raj Institutions and Nagar Palika Institutions' in the country. 
• Though several meetings of the GST council were held, no discussion was held about the possible impact of GST on local governance, with special reference to the local economy, functional autonomy,  financial autonomy, extent of decentralized planning and delivery of goods and services by the LGIs.

 

In this context I invite members of the Decentralization Community for their inputs on:

 

1. What are the areas where GST is likely to impact local governments and in what ways?

 

2. What are your suggestions on a way forward to minimize adverse impact on local government institutions?

 

Your comments and suggestions will help us in further clarifying issues and advocating for solutions to these problems.

 

Regards,

 

K.Gireesan

Rajiv Gandhi National Institute of Youth Development

Sriperumbudur

 

[Kripa Ananthpur]

Dear members,

 

I think this is an important area of concern under the new GST regime.

 

Entertainment tax is an important component of the tax base of the local bodies. Kerala, Karnataka and Tamil Nadu have all devolved the powers to levy entertainment tax to local bodies. The Centre had never received any share of entertainment tax till now. In that sense, the current attempt to levy GST on entertainment is an encroachment of the powers of the local bodies and goes against the principles of decentralization. The 101st amendment to the Constitution allows entertainment tax, IF NOT LEVIED BY LOCAL BODIES, to be subsumed under GST.  (Please refer Tamil Nadu 5th SFC report available online for more details on compensation principle). This issue has come under debate in Tamil Nadu in recent times.  Incidentally even before the GST rollout, the 5th SFC report in Tamil Nadu highlights this issue as a potential problem under GST and makes provisions to address this issue.

In Tamil Nadu, earlier the state government would collect the entertainment tax but the amount collected would be assigned to the local bodies. Post-GST, that power continues to be vested with the local bodies. So in that sense Tamil Nadu is empowering local bodies to collect entertainment tax as per its original mandate. . This is in line with spirit of decentralization. It is now up to local bodies to be innovative and levy taxes in such a way that it does not exceed a particular price range. I have not come across any other state government addressing this issue. If there are any other examples, kindly share.

 

Regards,

Kripa Ananthpur,

Madras Institute of Development Studies, Chennai

 

[R.S Mathur]

Dear members,

 

Reference the query on impact of GST on local governments, my comments are:

 

1. GST rollout has created a welcome mechanism towards cooperative federalism in the form of the GST Council which is the final authority on taking all decisions on GST. But in the absence of any representation of local bodies in the same, the interests and concerns of local bodies are not addressed. As a start, the Council may be expanded to include some urban and rural local bodies.
2. The GST Council needs to take a view on which local bodies taxes need to be kept out of the purview of GST. Already, there are some taxes like those on Petroleum products that are outside GS. It is an on going process and there should be nothing to prevent this.
3. After the 73rrd and 74th Constitutional amendments, not much has been done by way of legislation to further the cause of Decentralization. A lot has been said of late about Cooperative federalism. A broader view needs to be taken at the National level in consultation with all stake holders as to how and to what extent the local bodies fit into this concept.

 

For me, that is the core issue that needs to be addressed, once that happens, the rest will fall in place. There needs to be clarity at the highest level on Decentralization per se and this should not be seen through the narrow prism of electoral politics.

 

Regards,

 

R.S. Mathur 

Former Secretary to Government of India

Greater Noida