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Tamil Nadu Chief Minister J Jayalalithaa on Thursday urged Union Finance Minister Arun Jaitley to strive for a consensus on the goods and services tax (GST) and to allay states’ fears over loss of revenue and financial autonomy.
In a letter to Jaitley and other chief ministers, Jayalalithaa wrote: “I hope you will agree with my view that before the Constitutional Amendment Bill on GST is taken up, the government should strive for a broad consensus without compromising the fiscal autonomy of states.”
Stressing that the proposed uniform tax would result in a permanent loss of revenue to states, she sought an independent compensation mechanism be written into the Constitution. Jayalalithaa pointed out manufacturing states such as Tamil Nadu stood to lose substantial revenue with GST, which would shift levy of the tax from the point of origin to the point of destination.
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“The proposal to bring petroleum products under the GST ambit is another area of concern which would seriously diminish the limited revenue resources of states,” Jayalalithaa wrote. She was against dual levy of the tax by the state and the Centre because a portion of the tax on petroleum products would still be eligible for input tax credit. States should also be allowed to tax tobacco and tobacco products at rates on a par with the Centre, she added.
Jayalalithaa suggested states be allowed to grant exemption on all goods of local importance and have control over dealers with turnover of up to Rs 1.5 crore for intra- and inter-state supply of goods and services. This would allow the Centre to avoid expanding its administrative machinery while collecting the tax, she added.
States would lose revenue on transfer of input tax credit on inter-state sales and stock transfers and the Tamil Nadu chief minister wanted states to retain the entire share of the Centre in GST on inter-state sales without crediting any amount to a compensation fund. This would bring down the Centre’s compensation to states for switching over to the new tax, she added.
Jayalalithaa noted the threshold for levy of GST; the goods and services that were to be exempted; the rates, including floor rates with bands; and the taxes to be subsumed were crucial for determining the revenue-neutral rate of the new tax. Without finalising these elements, it might not be feasible to calculate the state-wise revenue-neutral rates, she wrote.
Tamil Nadu would lose revenue as the entertainment tax, luxury tax, entry tax on vehicles and betting tax would be included in GST, Jayalalithaa pointed out. This would be in addition to the revenue lost by phasing out the central sales tax and the transfer of input tax credit on inter-state sales and stock transfers, she added.
