Despite the continued logjam over the roll out of the goods and services tax (GST), the country has come a long way in tax reforms over the past 50 years, said YV Reddy, chairman of the 14th Finance Commission.
“I understand there is considerable frustration over the delay of GST. I share it but look where we were 50 years ago. So we should not be frustrated with the kind of tax rationalisation we have done in the last 50 years,” he said on Wednesday at the launch of a briefing book on Cooperative Federalism — from Rhetoric to Reality by Vidhi, Centre for Legal Policy.
With the Centre and states unable to reach a consensus on the indirect tax reform, the introduction of GST has been postponed over the years and even the latest deadline of April 1, 2016 now seems in jeopardy with the stalemate between the government and the opposition parties in Parliament.
The former RBI Governor also said most states have on the whole done much better than the Centre in economic and fiscal management compared. “Many, if not all states have increased their resources to plan and allocate funds. Planning capabilities is much better in many states than in the Centre,” he said, adding that the practice of federalism has empowered states.
“Despite the increase in discretionary transfer of funds by the Centre, states compete amongst themselves,” he said.
Reddy also said states in general have managed their fiscal affairs well. “Fiscal management has been far more prudent than that envisaged by the Thirteenth Finance Commission,” he said.
Pointing towards the report of the Fourteenth Finance Commission that has given greater autonomy over funds to states, he said the main issue in federal fiscal relations of states complaining of the Centre’s over reach in fiscal space has also be addressed recently.
Meanwhile, former Supreme Court Judge and chairman of the Financial Sector Legislative Reforms Commission Justice BN Srikrishna pointed out that with regard to fiscal issues, the Indian system has both vertical and horizontal imbalances. “As far as vertical imbalance is concerned, the taxation power of the Centre is more than the states,” he said.