{"id":40057,"date":"2025-03-29T18:52:27","date_gmt":"2025-03-29T13:22:27","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=40057"},"modified":"2025-03-29T19:54:03","modified_gmt":"2025-03-29T14:24:03","slug":"pac-report-on-gst","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/editorial-analysis\/29-03-2025\/pac-report-on-gst","title":{"rendered":"Equitable Distribution: PAC Report On GST"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Indian Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>19th report of Parliament\u2019s Public Accounts Committee (PAC)<\/strong> called for a comprehensive overhaul of the GST framework, proposing a <strong>revamped \u2018GST 2.0\u2019<\/strong> to address procedural inefficiencies and compliance challenges.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About the Goods and Services Tax (GST)<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It is a comprehensive, multi-stage, <strong>destination-based<\/strong> tax levied on the supply of goods and services in India.&nbsp;<\/li>\n\n\n\n<li>It was implemented on July 1, 2017 by<strong> the 101st Constitutional Amendment Act, 2016<\/strong>, <strong>replacing multiple indirect taxes<\/strong> such as VAT, service tax, excise duty, and others.<\/li>\n\n\n\n<li>It is governed by the <strong>GST Council,<\/strong> which includes representatives from both the central and state governments.<\/li>\n\n\n\n<li>For the <strong>key features of GST, <\/strong>kindly visit the:&nbsp; <a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/23-09-2024\/7-years-of-goods-and-services-tax\">https:\/\/www.nextias.com\/ca\/current-affairs\/23-09-2024\/7-years-of-goods-and-services-tax<\/a><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Need For Reforms: Concerns Highlighted in the PAC Report<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Decline in Indirect Tax Revenue:<\/strong> Nearly 2% drop in indirect tax revenue between FY18 and FY20, prior to the COVID-19 pandemic.\n<ul class=\"wp-block-list\">\n<li><strong>High-revenue states<\/strong> like Maharashtra, Tamil Nadu, and Karnataka contribute significantly but feel that revenue redistribution is not proportional to their contribution.<\/li>\n\n\n\n<li><strong>States with low tax collection capacity,<\/strong> such as those in the Northeast and economically weaker regions, struggle to generate sufficient revenue under GST.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Impact on Fiscal Federalism:<\/strong> The Central Government controls GST rates, exemptions, and procedural rules, limiting states\u2019 autonomy in taxation.<\/li>\n\n\n\n<li><strong>States\u2019 Compensation Fund:<\/strong> Non-auditing and non-finalization of the States\u2019 Compensation Fund for over six years.\n<ul class=\"wp-block-list\">\n<li>It strained the functioning of the federal tax structure and delayed compensation to states for revenue losses.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Centralizing Tendencies:<\/strong> Major revenue-generating states have expressed concerns over diminished fiscal autonomy and sharp declines in indirect tax collections.\n<ul class=\"wp-block-list\">\n<li>The destination-based nature of GST adversely affects manufacturing-heavy states.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Complex Registration Processes:<\/strong> Issues with biometric-based Aadhaar authentication and other registration hurdles were identified as barriers to achieving the vision of<strong> \u2018One Nation, One Tax\u2019.<\/strong><\/li>\n\n\n\n<li><strong>Revenue Leakages:<\/strong> Report highlights concerns over tax evasion and fraudulent input tax credit claims, which affect revenue distribution fairness.<\/li>\n\n\n\n<li><strong>Criminal Penalties for Unintentional Errors:<\/strong> The PAC flagged the issue of honest taxpayers facing severe penalties for unintentional compliance failures, calling for a more balanced approach to enforcement.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Recommendations for Reform<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>GST 2.0:<\/strong> The report calls for <strong>a comprehensive review<\/strong> to develop a <strong>\u2018GST 2.0\u2019<\/strong> which would address <strong>states\u2019 demands for a greater share of GST revenues<\/strong>, closer to 70%-80%, up from the <strong>current 50%.<\/strong>\n<ul class=\"wp-block-list\">\n<li>With GST 2.0, authorities may:\n<ul class=\"wp-block-list\">\n<li>Implement biometric authentication to prevent fake invoicing.<\/li>\n\n\n\n<li>Use real-time transaction monitoring to detect anomalies.<\/li>\n\n\n\n<li>Strengthen penalties and legal actions against tax evaders.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Timely Audits and Updates:<\/strong> The PAC recommended establishing a formal mechanism with the Comptroller and Auditor General (CAG) to ensure timely audits and updates on pending cases.<\/li>\n\n\n\n<li><strong>Simplification of Processes:<\/strong> Streamlining GST procedures and enhancing the user-friendliness of the GST portal are essential to reduce compliance burdens and improve efficiency.\n<ul class=\"wp-block-list\">\n<li>It aims to reduce the compliance burden on MSMEs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Reintroducing GST Compensation:<\/strong> Extending compensation support for another 3-5 years, especially for economically weaker states.<\/li>\n\n\n\n<li><strong>Improved GST Portal:<\/strong> The PAC recommends clear guidance and support for taxpayers at every step of the filing process to minimize errors and delays.<\/li>\n\n\n\n<li><strong>Enhancing Tax Compliance:<\/strong> Implementing stricter measures to curb fraud and ensure that tax revenues are fairly distributed.<\/li>\n\n\n\n<li><strong>GST Revenue Devolution Formula<\/strong>: Developing a new mechanism for progressive distribution of GST revenue, ensuring fairness based on economic capacity and needs.<\/li>\n\n\n\n<li><strong>Periodic Review of GST Rates:<\/strong> Establishing a structured review process to align GST rates with economic conditions and ensure consistency.<\/li>\n\n\n\n<li><strong>Use of Technology:<\/strong> The e-invoicing system and AI-based monitoring tools have been suggested as ways to reduce leakages.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The PAC\u2019s findings underscore the need for equitable distribution and systemic reforms in the GST framework.&nbsp;<\/li>\n\n\n\n<li>By addressing the challenges, India can ensure a more balanced and effective tax system that supports both economic growth and fiscal federalism.&nbsp;<\/li>\n\n\n\n<li>Collaborative efforts between the Centre and states will be crucial in achieving these goals.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Daily Mains Practice Question<\/strong><br><strong>[Q]<\/strong> How can the implementation of equitable revenue distribution under Goods and Services Tax (GST) address the key challenges and strengthen India&#8217;s federal fiscal structure?<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><a href=\"https:\/\/www.thehindu.com\/opinion\/editorial\/equitable-distribution\/article69386621.ece\" rel=\"nofollow noopener\" target=\"_blank\">Source: TH<\/a><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/www.nextias.com\/ca\/wp-content\/uploads\/2025\/03\/UPSC-Editorial-Analysis-29-March-2025.pdf.pdf\">Download PDF<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The 19th report of Parliament\u2019s Public Accounts Committee (PAC) called for a comprehensive overhaul of the GST framework, proposing a revamped \u2018GST 2.0\u2019 to address procedural inefficiencies and compliance challenges.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[22],"tags":[],"class_list":["post-40057","post","type-post","status-publish","format-standard","hentry","category-editorial-analysis"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/40057","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=40057"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/40057\/revisions"}],"predecessor-version":[{"id":40084,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/40057\/revisions\/40084"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=40057"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=40057"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=40057"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}