 "Maharashtra, UP show India what to expect from GST")
Maharashtra, India’s most industrialised state, and Uttar Pradesh (UP), the most populous, expect to get at least Rs 60,000 crore and Rs 65,000 crore, respectively, per year, once the Centre implements the goods and services tax (GST), the economy’s most awaited indirect tax reform.
These sums, calculated by IndiaSpend based on data from the Reserve Bank of India’s Study of State Finances, are almost equal to the revenue Maharashtra and UP currently receive through a host of taxes, which will be replaced once GST is implemented.
This means the GST should make sense financially, but, politically, it is a hot potato, with the Centre getting a far larger domain of India’s tax administration.
Why Maharashtra and Uttar Pradesh for the analysis? Maharashtra has the highest revenue from its own taxes, as a share of total revenue, at 66%, and UP has the highest total revenue but no more than 36% is from its own taxes.
“Either there should be an equally potent revenue generating option for Mumbai (like octroi) or the Centre should compensate for that as well,” Maharashtra Finance Minister Sudhir Mungantivar of the Bharatiya Janata Party (BJP) told IndiaSpend.
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He said he hoped that the Centre would agree to the state’s demands of compensation in case of lost revenue, as well as a 1% additional levy to account for its manufacturing-state status.
| Revenue Receipts Of Centre And States, 2014-15 (Rs. crore) | |||
|---|---|---|---|
| Revenue Head | Tax Revenue | Under GST | Not Under GST |
| Direct Taxes | 7,48,643 | 7,48,643 | |
| Customs | 2,01,819 | 1,47,413 | 58,1061 |
| Union Excise Duties | 2,06,356 | 1,28,356 | 90,0002 |
| Service Tax | 2,15,973 | 2,15,973 | |
| State Excise Duty | 1,00,577 | 1,00,577 | |
| Stamp Duty and Registration Fees | 98,175 | 98,175 | |
| General Sales Tax (VAT) | 5,61,597 | 4,26,600 | 1,35,0003 |
| Taxes on Vehicles | 43,469 | 43,469 | |
| Entertainment Tax | 2,294 | 2,294 | |
| Taxes on goods and Passengers | 21,276 | 21,276 | |
| Electricity duty | 24,947 | 24,947 | |
| Taxes on purchase of Sugarcane | 186 | 186 | |
| Others | 12,373 | 12,373 | |
| Total | 22,37,685 | 9,20,822 | 13,32,566 |
Source: Indian Public Finance Statistics 2014-15, Ministry of Finance, Petroleum and Natural Gas Statistics, 2014-15, Revenue Receipts, Budget 2014-15, Report No. 17 of 2013, CAG of India
[1] Basic Customs Duty, [2] Excise Revenue from Petroleum and cigarettes (2013 data for cigarettes), [3] VAT through petroleum products
(Other taxes have been considered under sources not subsumed, although some might have been included in the GST.)
A rate of 15-16% can serve as a revenue neutral rate for the GST, according to the latest report submitted by a committee under Chief Economic Advisor to the Finance Minister.
The standard rate of GST (rate at which goods and services will be actually taxed) could be between 17% and 19%, which is to be decided (and modified) by the GST Council.
How will the GST work?
A GST council will control the new tax regime across Centre and states; it will fix tax rates, exemptions and other issues. The Centre’s representatives control a third of the vote in the council.
Two central representatives (Finance Minister and Minister of State for Finance) account for 33.3% of the vote, while 29 finance ministers account for the remaining 66.7% vote, according to the 122nd Constitutional Amendment Bill passed in the Lok Sabha (lower house of Parliament).
Tax proposals, exceptions and exemptions can be passed in the GST council only with three-fourths of the members present and voting.
Why the GST is a political hot potato
The GST will allow the Centre to wrest more control of India’s tax administration from the states, reducing their economic bargaining power and administrative flexibility.
It will imply a “new federalism”, as this column in The Indian Express described it.
If a higher percentage of manufactured goods and services are taxed under the GST regime, final prices of products might increase in the short term; the positive effects of GST might show up only later.
An extended period of high inflation, against the backdrop of Reserve Bank estimates of 6% in 2016 and 5% in 2017, might affect the electoral prospects of the BJP in the 2019 general elections to the Lok Sabha.
Reserve Bank of India Governor Raghuram Rajan, while speaking on structural reforms in economy at a conference in Mumbai, quoted former Prime Minister of Luxembourg Jean Claude Junker: “We all know what to do (structural reform); we just don’t know how to get re-elected after we’ve done it.”
(IndiaSpend is a data-driven, public interest journalism non-profit)