No friction between Centre-States on GST; federal structure should be respected: Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman emphasizes respect for federal structure in GST reform, prioritizing compliance over revenue generation.

Union Finance Minister Nirmala Sitharaman on Thursday (September 5, 2024) denied any "friction" in the ties between the Centre and States over Goods and Services Tax (GST) and emphasised that the federal structure in this economic reform should be respected.

“Simplifying and easing compliance on the tax payers received top priority rather than raising revenue during all consultative meetings on the Union Budget,” she said.

"Revenue is the last consideration with which every Budget meeting happens. You may think that I am not telling the truth. The hard truth I would like to put before you. Yes, we like to raise revenue. During several consultations including those with Prime Minister Narendra Modi, revenue raising came last. But, simplifying, easing and compliance of taxpayers came first," Ms. Sitharaman said.

Addressing a meeting on "The Finance Minister's Insight: Path Forward" held under the aegis of the Revenue Bar Association in Chennai, she said the average Goods and Services Tax (GST) rate decreased to 12.2% as of 2023, which was much below the revenue neutral rate (RNR), originally suggested at 15.3%.

"We did see how much of effort happened at ground level to bring one nation-one taxation," she said. On a charge in certain quarters on one of the biggest economic reforms in India, Ms. Sitharaman said "I completely deny that there's a lot of friction in GST relationship with States...The Centre is not extracting revenue from States."

“The federal structure in the GST framework has to be respected so that both the Centre and States could work together to promote developmental activities besides widen the tax base,” she said. “That’s the spirit with which we are working,” the Finance Minister stressed.

“The spirit of revenue generation for both Centre and States should be to see how evasion could be avoided or targeted, how this should be addressed, and compliance ensured by making people think it is better and easier to comply than to evade,” she said.