GANDHINAGAR: The Gujarat government has demanded incremental compensation from the Centre in proportion to the revenue loss the state exchequer is likely to suffer when the goods & service tax (GST) regime comes into force.
An official report prepared by the state commercial tax department and submitted recently to the Union finance ministry says Gujarat will directly lose Rs 10,800 crore per annum from 2016-17, if the GST regime is implemented. Moreover, lack of compensation for the loss of 2% central sales tax (CST) will further add to the state’s revenue shortfall.
Earlier, the Gujarat government had raised objections to the proposed formula for states’ share in GST. The state government’s argument was that Gujarat being a manufacturing state will face major revenue losses as GST is based on the principle of taxation at the place of consumption, and not at the place of manufacture.
“Being a manufacturing state, Gujarat may lose its current income and may not be able to match current revenue growth projections. The state’s major income is from textile, pharma, chemical, auto and ancillary products, food items, engineering etc, for which local consumption is limited,” said a state government officer.
The state government had, therefore, demanded an increase of 2% or minimum 1% in the proposed GST but it is now clear that Gujarat’s suggestion will not be accepted. Hence, the state government has demanded incremental compensation for loss of revenue on account of GST, said officials.
Gujarat finance minister, Saurabh Patel, had pushed hard for additional tax rate in the GST regime to make up for the state’s revenue loss.
“The central government has said that our loss will be compensated by service tax, but there are no projections available on it. However, the Centre has assured us that any loss to the state will be compensated,” said the minister.