GST needs fundamental restructuring, says Finance Commission Chairman

The 15th Finance Commission's final recommendations for the period between 2021 and 2026 have been tabled in the Indian parliament.

The share of states in central taxes has been recommended at 41 percent, which is the same as 2020-2021.

The commission has also said that the 2011 census data represents the needs of the states and helps to fairly reward states that have done better demographically.

However, the Finance Commission has observed that a steady increase in cesses and surcharges have had a direct impact on the divisible pool for states because the increased cess collections are not shareable. The commission estimates cesses and surcharges to average 18.4 percent of gross tax revenue between FY22 and FY26 from 13 percent average between FY17 and FY19.

The commission has also recommended that the FRBM Act needs major restructuring and the timeline for defining and achieving debt sustainability should be examined by a high-powered inter-ministerial group. This group can draft the FRBM Act and oversee its implementation.

Healthcare spending has also received attention in the report. The finance commission has recommended that health spending by states should be increased to more than 8 percent of their budget by 2022.

It has also recommended that total public health expenditure should be increased to reach 2.5 percent of GDP by 2025.

To discuss the recommendations, Shereen Bhan spoke to NK Singh, chairman of 15th Finance Commission.

Speaking about Budget 2021 Singh said, "Budget 2021 marks a tectonic mind-set change. We have for once got out of the miasma of uncertainty to embrace the market or to get out of the market, to privatise or not to privatise, to find scope for private capital or to spotter private capital, I think we had remained trapped in this for very long. This Budget recognising for the first time that the issue of the ownership of public sector banks should not be cast in stone, that public sector undertakings which had become unproductive and outlived their utility yielding very poor returns to the sovereign which had invested vast resources on this, required a fundamental rethink."

Speaking about Goods and Services Tax (GST) he said, "Realisations from the GST by way of revenue and by the consequence also on the GST cess has been less than what was expected and it has impacted the finances both of the union government and the states as well. In our chapter relating to resources we have given number of important suggestions on how to restructure the GST and these have been favourably commented upon by the finance minister herself in her Budget speech that on many issues, the GST administration, the procedures and in terms of the broad structure, we need to go back to the drawing board. The GST certainly requires a very fundamental restructuring and the finance secretary has said that they are quite conscious of this and that the GST council would consider many of the suggestions which have been made on the basis of our priority."