States are not being given federal flexibility and there are efforts to undermine the federal structure, former Kerala Finance Minister Thomas Isaac said, adding that federalism has to be a topic of national discourse.
- Advertisement -
“Every opportunity is made to undermine the federal system…it is a terrible situation,” Isaac said during the fifth LC Jain Memorial Lecture on ‘The Challenges of Federalism: Negotiating Centre State Tensions’.
He said the Centre’s fiscal deficit has fluctuated between 3.5 and 6 per cent since 2005-06.
“States are not supposed to borrow beyond 3 per cent of the GSDP. The government has never complied with it…from 2005-06, central government’s fiscal deficit has fluctuated from 3.5-6 per cent. This is the basic asymmetry. No rule or law, the Centre needs to comply but states are forced to,” he added.
- Advertisement -
Speaking about the lack of federal flexibility for states under the Goods and Services Tax (GST) regime, Isaac said levy of compensation cess could have continued for two more years.
“It can have some federal flexibility…when the calamity of floods came, Kerala requested and was permitted to have a 1 per cent cess on SGST (state GST). Nothing happened to the architecture of GST. See, you can give federal flexibility by permitting states…(some states may) want more schools, they want to break FRBM Act, those who don’t want to do it, don’t do it but even that bit of flexibility is not there.
“The compensation has stopped…it is a tax collected from sin goods like tobacco…you can continue for further two years…earlier there were negotiations, now that’s not (the case),” he said.
- Advertisement -
Under GST, as per the Goods and Services Tax (Compensation to States) Act, 2017, the states were guaranteed compensation at the compounded rate of 14 per cent from the base year 2015-16 for losses arising due to implementation of the taxation regime for five years since its rollout. The compensation regime ended in June 2022.
