Before the introduction of the goods and services tax (GST), a crucial doubt of many states remains to be cleared: would they be compromising on their fiscal autonomy or the power to tinker with the tax rates when the new regime is rolled out?
States like Tamil Nadu want there should be either a floor rate or a rate band, instead of a uniform GST rate, and they should be allowed to impose the proposed tax above the minimum rate in order to mobilise resources for welfare programmes.
Taking on board the concerns on state autonomy, the Centre is already working on a proposal to set up an inter-state body through a legislation for harmonising the GST structure. The states, however, continue to have reservations.
In fact, Tamil Nadu Finance Minister K Anbazhagan raised the issue in his speech that was tabled in absentia at the meeting of state finance ministers with Finance Minister Pranab Mukherjee today. “When monetary policy is common across the states, fiscal policy is the only instrument available to handle regional imbalance and localised needs. In accordance with this policy in the two-rate structure, the states must have the flexibility to set state GST rate above the floor rate,” he said.