How might GST 2.0 reforms address the concerns of states regarding fiscal autonomy and revenue sharing?

The Goods and Services Tax (GST) was introduced in 2017 to create a unified indirect tax system in India. However, several states have raised concerns about loss of fiscal autonomy and unpredictability in revenue sharing. The idea of GST 2.0 reforms is being discussed to address these challenges and ensure a more balanced federal fiscal structure.

• Greater Flexibility in Tax Rates: GST 2.0 could allow states limited flexibility to adjust tax rates on certain goods and services, enabling them to respond to local economic needs without undermining the national framework.
• Strengthening Revenue Sharing Mechanisms: The compensation mechanism for revenue loss, which ended in 2022, may be revamped or extended. This could provide states with a predictable revenue stream and reduce their dependence on the Centre.
• Decentralized Decision-Making: Increasing the role and voting power of states in the GST Council can help address their concerns and ensure that decisions reflect regional priorities.
• Improved Dispute Resolution: Establishing an independent dispute resolution mechanism can help resolve disagreements between the Centre and states over revenue sharing and tax administration.
• Timely Release of Funds: Ensuring the prompt release of GST compensation and IGST settlement funds will help states manage their finances better and plan welfare schemes effectively.
• Expanding the Tax Base: By including more goods and services under GST and reducing exemptions, GST 2.0 could boost overall revenue, benefiting both the Centre and the states.