Why is Tamil Nadu objecting to GST?

Worried about autonomy of states and revenue loss under GST would be around Rs 9,270 crore for the state

The Tamil Nadu government has opposed the goods and services tax (GST) as it is concerned about the impact the tax would have on the fiscal autonomy of states and the huge permanent revenue loss it would cause.

Chief Minister J Jayalalithaa said the state was happy that some of the concerns raised by the state had been addressed. However, several concerns have not been addressed.

For example, a GST Council as a constitutional body would impinge on the legislative sovereignty of Parliament and the State Legislatures and would jeopardise the autonomy of the states in fiscal matters. The existing mechanism of the Empowered Committee of State Ministers which dealt with value-added tax (VAT) issues was adequate. “Ideally, no statutory GST Council is required,” said Jayalalithaa.

The decision-making rule and voting weight in the proposed council were found unacceptable as these gave the Centre an effective veto in the GST Council and no distinction has been sought to be made among the states in weight. Further, the weight of each state’s vote should be in proportion to the representation of the state in the Rajya Sabha. This was important as the changeover to GST had different implications for different states based on their size and reliance on own-tax revenues, said Jayalalithaa.

The state wanted petroleum and petroleum products out of GST's ambit permanently. There was a need to enable the states to levy higher taxes on tobacco and tobacco products, she said.

“It is quite clear that a manufacturing state like Tamil Nadu will permanently lose substantial revenue if GST is implemented, due to the shift of the levy from the point of origin to the point of destination and also due to the phasing out of central sales tax and the transfer of input tax credit on inter-state sales and inter-state stock transfers to the destination states. Due to the difficulty in fixing even nominally high revenue-neutral rates, it is expected that the extent of revenue loss under GST would be around Rs 9,270 crore for Tamil Nadu,” said Jayalalithaa.

Tamil Nadu reiterated the need for a constitutionally mandated independent compensation mechanism for full (100 per cent) compensation of revenue losses suffered by the states for not less than five years.

In lieu of the proposed additional levy of 1 per cent tax on inter-state supply of goods, Tamil Nadu has suggested that the origin states be allowed to retain four per cent of the central GST part of the inter-state GST that would be levied on inter-state supply of goods and services. This would ensure speedy compensation for a portion of the revenue loss and would reduce the amount of compensation payable.

Tamil Nadu said before the constitutional amendment Bill on GST was taken up, the Centre should strive for a broad consensus on important issues such as the compensation period and methodology, revenue-neutral rates, floor rates with bands, commodities to be excluded from GST and clarity on dual administrative control among others.