Key Findings and Criticism
- Revenue Decline: The report highlights a 2% drop in indirect tax revenue between FY18 and FY20, before the COVID-19 pandemic.
- Compensation Fund Issues: The non-auditing and non-finalisation of the States’ Compensation Fund for over six years has caused financial strain.
- Lack of Transparency: The Centre failed to furnish the Compensation Fund Account to the Comptroller and Auditor General (CAG), delaying payments to States.
- Centralisation Concerns: GST’s structure has diminished fiscal autonomy for revenue-heavy States, especially those reliant on manufacturing.
GST Compensation and Financial Shortfalls
- The GST (Compensation to States) Act, 2017, promised States 14% annual revenue growth for five years (2017–22), using FY16 as the base year.
- Delays and Non-Payment: Many States reported either delayed or missing compensation, impacting governance.
- The PAC attributes this to the Centre’s indifferent approach.
Audit Discrepancies
- ₹32,577.73 crore in inconsistencies were found in a sample of 10,667 cases.
- The Finance Ministry’s audit approach was termed “lackadaisical” by the PAC.
- A formal mechanism with the CAG was recommended to ensure timely audits and updates.
Recommendations for GST Reform
- The PAC suggests a comprehensive review for a “GST 2.0” to improve the tax regime.
- States demand a larger GST revenue share (70%-80%), up from the current 50%.
- Improved audit mechanisms and transparency are necessary for smoother GST implementation.
The PAC’s report strongly criticizes GST’s structural inefficiencies, lack of transparency, and fiscal centralisation, reinforcing long-standing demands for reforms and greater State autonomy in revenue distribution.
