GST framework needs to be studied by an independent committee

The GST Council is to meet this week to sort out the issue of compensation because of tax collections falling short of requirements. The GST legislative framework makes it necessary for the Centre to compensate states in case the tax collections fall below a threshold. However, given the unusually large shortfall in collection this year, the Centre is struggling to find the resources for compensation.

The GST Council in its forthcoming meeting may want to consider a suggestion from RBI which was communicated through its annual report released yesterday. The central bank has suggested that it may be appropriate to appoint an independent committee to evaluate the current GST framework. After an evaluation, the committee could be asked to recommend a way forward.

This is a sensible suggestion. Three years after its rollout, GST’s economic impact is well below what was envisaged. To realise its full potential it is necessary to make significant changes in its framework.