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This is further complicated by the recent revelation of the Comptroller and Auditor General, and explained by Professor Govinda Rao in The Hindu, that in the last few years, the Centre deliberately mis-allocated nearly 3 lakh crore collected through various cesses, to reduce the States' share of tax revenues. The Centre's dishonesty has eroded its credibility with the States and widened the trust deficit. Amidst this background, the GST compensation issue could be put to vote in the GST Council meeting today.
The GST Council has 31 States and Union Territories represented. The Council was set up in 2017 as a new financial institution with the enormous economic responsibility of directing policy for half of all tax revenues of the country. Sadly, this vital institution, like many others, has dwindled rapidly into yet another avenue for political power play.
Twenty members of the GST Council that have agreed to the Centre's proposal are governed by the Bharatiya Janata Party (BJP) or BJP alliance. The 11 States that have opposed the Centre's plan are all governed by the Opposition. The 11 opposing States account for a greater share of overall GST revenues than the 20 supporting States, large or small, has equal weight in the GST Council. Twelve votes can veto a proposal in the GST council.
The Centre has reiterated its commitment to fulfil the GST compensation obligation to the States. So, only the modus operandi of raising funds to fulfil this obligation is to be decided. This is primarily an economic issue and should be settled based on what makes the most economic sense for each State and for the nation overall.
Each State's economic realities are distinct. Just four States - Maharashtra, Gujarat, Tamil Nadu and Karnataka - account for nearly as much GST tax revenues as the remaining 27 States and Union Territories combined. But Gujarat and Karnataka support the Centre's proposal while Maharashtra and Tamil Nadu have opposed it. GST compensation constitutes a significant share of the revenues of Punjab and Himachal Pradesh, yet Himachal Pradesh supports the Centre's plan while Punjab is against it. Rajasthan and Haryana have similar sized fiscal deficits. Rajasthan is understandably apprehensive, but Haryana seems ready to indulge in more borrowing.