The claim that the GST cuts down the states’ autonomy is considerably overstated if looked at in a dynamic perspective. First, it is true that the states will not be able to use goods and services taxes to finance local practices. But for a while, they have considerable leeway on petroleum taxes that form a bulk of their revenue. Second, we are possibly underestimating the potential of non-goods and services-related revenue the states can deploy. In fact, one of the weaknesses of the current system was that the revenue efforts of most states were pretty meagre; they often took the easy way out. The degree to which states (and local governments) can deploy other kinds of taxes like property taxes is very much an open one. I would not underestimate the states’ creative capacities to find new sources of revenue if a distortionary mechanism is closed off. And in future, there could even be a debate on allowing some degree of state income taxes. Third, if the aggregate revenues go up because of the GST, that arguably creates a new kind of spending autonomy.
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