The Union Budget is a tool which government has long used to make a statement of fiscal policy. Taxation has been one instrument of fiscal policy by which the Central government could determine flows of income, consumption and investment. The introduction of the Goods and Services Tax (GST) has brought in a paradigm shift in the manner in which the government can now wield the instrument of taxation.

As per Article 279A (4), the GST Council has the power to make recommendations to the Union and the States on, inter alia, the GST laws and the rates of goods and services tax. There is a corresponding duty cast on the government to consult the Council on all key matters relating to GST, including rates and exemptions, making consultation with the Council mandatory.

At the core of GST Council functioning is the need for a harmonised structure of GST. Consequently, the Central government’s ability to unilaterally decide rates is severely curtailed.

It is clear, therefore, that the changes in GST laws or rates that the Union Budget can introduce will have to be as per the recommendations of the GST Council. It is in the light of this that the meeting of the GST Council preceding the Union Budget assumes importance as it will likely shape the proposals in the budget document.

Notwithstanding this, several pre-budget memorandums have been submitted to the government highlighting the need for changes, both in the law and in the rates of the GST.

The Central government has, therefore, the unenviable task of getting the acceptable proposals consented to by the GST Council. The council deliberations and decisions, for once, may not be as transparent and available in public domain as has been the case hitherto. Alternately, the changes in rates may be left out of the Union Budget and the cloud of secrecy that is synonymous with budget presentation may remain undiluted.

Traditional influencer

However, such a turn of events means taxation as the traditional influencer of fiscal policy will take a back seat and put immense pressure on the government to balance tax and expenditure and at the same time moderate inflation without sacrificing growth.

Also, as the changes in law will have to be simultaneously carried out both by the Centre and the States, they would be effective not from the day of budget or the date of Presidential assent, but from a date to be notified thereafter so as to allow the States to legislate their own changes in SGST laws.

The constraints on the Central government’s ability to dictate the changes do not, however, extend to the areas of Customs and Direct Taxes. It is to be expected, therefore, that most changes in indirect tax law and rates would pertain to the area of Customs. Most of these changes would be structural changes that flow in line with the free trade agreements and direction that the government wishes to follow for protecting Indian industry or setting the ‘Make in India’ agenda on its path.