The Impact Of GST On Fiscal Federalism

Hema Biswas, LL.M. Scholar, National Law University Odisha

ABSTRACT

The Goods and Services Tax (GST) represents a significant fiscal reform in India, aimed at streamlining and rationalizing the tax structure by integrating various indirect taxes into a unified framework. This reform has profound implications for fiscal federalism, influencing the distribution of tax revenues and redefining the roles and relationships between central and state governments. The establishment of the GST Council, a collaborative body with representatives from both levels of government, underscores the importance of cooperative federalism in policy formulation and implementation. This article explores the multifaceted impact of GST on fiscal federalism, including aspects such as revenue distribution, fiscal autonomy, intergovernmental relations, and cooperative federalism. The transition to GST has facilitated fiscal efficiency through the Integrated Goods and Services Tax (IGST) mechanism, yet it also presents challenges like classification of goods and services, tax rate determination, and compliance requirements. Additionally, the GST has significant implications for state fiscal autonomy and decentralization, necessitating a balance between enhanced revenue buoyancy and constrained state discretion in tax policy. The introduction of the GST Compensation Fund highlights the need for addressing revenue disparities and ensuring fiscal equity among states. This article provides a comprehensive analysis of the advantages and disadvantages of GST in the context of fiscal federalism, emphasizing the importance of effective coordination, collaboration, and capacity-building to uphold the principles of fiscal federalism and promote inclusive and sustainable growth.

Keywords: Goods and Services Tax (GST), Fiscal Federalism, Revenue Distribution, Fiscal Autonomy, Cooperative Federalism, Integrated Goods and Services Tax (IGST), GST Council, Tax Reform