UPSC CURRENT AFFAIRS – 29th March 2025
PAC Report Calls for GST 2.0 & Fiscal Reforms
Why in News?
- The 19th report of the Public Accounts Committee (PAC) was tabled in Parliament on March 29, 2025.
- It criticizes the functioning of the GST regime and raises serious concerns about fiscal transparency and state compensation.
- The PAC has called for a “GST 2.0” reform model to ensure equitable revenue distribution and restored federal balance.
Key Highlights from the PAC Report
- Revenue Drop: Nearly 2% decline in indirect tax revenue between FY18 and FY20 (pre-COVID years).
- No Audit of Compensation Fund:
- The States’ Compensation Fund has not been audited or finalized for 6+ years.
- The Centre did not submit accounts to the CAG, delaying disbursement to States.
- Revenue Mismatches:
- Audit of 10,667 cases revealed 2,447 inconsistencies, worth ₹32,577 crore.
- “Lackadaisical” Audit Approach: The PAC termed the Finance Ministry’s approach inefficient and negligent.
- Delayed Compensation: Many States have not received dues or faced serious delays, harming governance and development.
Key Concepts
- GST (Goods and Services Tax): A unified indirect tax, destination-based, rolled out in July 2017 to simplify tax compliance.
- Destination-Based Taxation: Revenue accrues to the state where goods/services are consumed, not produced — hurts manufacturing States.
- Compensation to States Act, 2017:
- Promised 14% annual revenue growth (2017–22), based on FY16 as base year.
- Funded by cess on sin/luxury goods (tobacco, coal, etc.).
- CAG Audit: The Comptroller and Auditor General is responsible for auditing government accounts — without submission, no certification is possible.
Concerns Raised by the PAC
- Centralisation of GST Regime: Major States feel the Centre dominates tax decisions, eroding State fiscal autonomy.
- Loss of State Revenues: Manufacturing states report sharp declines in revenue after GST rollout.
- Vertical Fiscal Imbalance: States have more responsibilities but fewer resources, increasing dependence on the Centre.
- Demand for Revenue Share Revision:
- Currently, GST revenue is shared 50:50 between Centre and States.
- States demand 70–80% share, citing rising expenditure burdens.
PAC Recommendations
- Formal Audit Mechanism: Establish institutional coordination between Centre and CAG for timely audits.
- Transparency in Fund Management: Ensure regular submission and public availability of Compensation Fund records.
- Launch of GST 2.0:
- Comprehensive review of current GST structure.
- Reforms in compliance, compensation mechanism, revenue sharing, and audit accountability.
- Restore the spirit of cooperative federalism.
Why It Matters
- Trust Deficit: Delays and opacity have strained Centre–State relations.
- Federal Principles Undermined: GST was meant to unify, but may now be weakening federal balance.
- Reform Opportunity: GST 2.0 can offer a more equitable, accountable, and efficient framework if implemented with consensus.
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Satirical writing serves as democracy’s built-in skepticism amplifier. — Alan @ Bohiney.com
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Satire is the art of the plausible implausible, the possible impossible, the logical illogical. — Toni @ Bohiney.com
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