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Anxious states eye revenue hits, misses
NEW DELHI: There are still no clear estimates on how GST will hurt states’ public finances, even though the Centre has agreed to fully compensate states for five
NEW DELHI: There are still no clear estimates on how GST will hurt states’ public finances, even though the Centre has agreed to fully compensate states for five years for potential revenue loss.
The Maharashtra and Tamil Nadu governments fear revenue losses to the tune of ₹14,000 crore and ₹9,000 crore, respectively. Both governments are wary of the crisis that is likely to arise after five years.
“We are concerned about protecting revenue... any rate discussion should be ring-fenced with two principles. One it should not hurt the common man and second, it should protect states’ revenue collection,” said Amit Mitra, finance minister of West Bengal, and chairman of the empowered committee of state FMs on GST.
Some experts said the new system will be “revenue neutral,” implying it will not shave off government tax earnings.
“GST is intended to be revenue neutral. In the medium term, GST is likely to have a positive impact on the economy and government revenues,” said Marie Diron, senior vice-president, Moody’s Investors Service.
GST will ensure smooth movement of goods and services, and focus on companies’ locations (where GST will be levied) rather than tax regimes.
“Moreover, the simplification of the tax system that GST’s introduction will help in reducing companies’ and the government’s tax administration costs. This should improve compliance and raise government’s revenues,” Diron said.
According to Sachin Menon, head, indirect tax, KPMG, even if a ballpark figure of ₹4,000 crore is taken as the revenue loss for each of the five key manufacturing states — Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh and Karnataka — the Centre will have to bear an annual compensation of ₹20,000 crore.
“This is not a very big amount and there is no cause for any concern for any state,” Menon said.
According to the finance ministry, GST will result in better tax compliance due to a robust IT infrastructure.
