Maha will be comfortable with 18% GST rate, says FM


MUMBAI: An 18% standard GST rate seems palatable to Maharashtra, as it would get full compensation for any losses during the first five years. The budgeted revenue of the state’s taxes (2016-17) is Rs 144,221 crore. Sales tax is a major chunk of the state’s tax revenue. The budgeted estimate is Rs 81,438 crore. State sales tax, together with many local taxes, including octroi, will get subsumed under GST (Goods and Services Tax).

State finance minister Sudhir Mungantiwar said, “An 18% GST rate will be comfortable for Maharashtra. Even at this rate there will be a shortfall of Rs 32 crore, which is not too much of a burden.”

He said the final decision will be taken at a meeting after discussions with the finance ministers of all states. He said compensation that states need to demand from the Centre needs to be worked out.
Tax experts explain why the rate of 18% is workable for Maharashtra. Sunil Gabhawalla, indirect tax specialist says, “Broadly, for the manufacturing sector, effective state taxes currently work out to 27-28% (say 12.5% of excise and VAT each, plus other taxes like octroi). In this backdrop, the standard 18% GST rate (Centre and state combined), seems to be a lower rate. However, apart from full compensation for the initial five years, Maharashtra, like all other states, will get the right to tax services. Currently, services are subject to taxes only by the Centre.”

Gabhawalla says, “Even the higher slab of 40% for ‘sin products’, as suggested by the Arvind Subramaniam committee, appears reasonable. To illustrate, soft drinks fall in this higher slab. Currently soft drinks in Maharashtra are subject to a VAT of 25% and a 12.5% excise duty rate, so there is not much of a difference vis-a-vis the proposed highest GST rate.”

The component of the basket of goods and services which will fall in the various GST slabs, especially the nil and lower slab rate (suggested at 12% by the Arvind Subramaniam panel) is crucial, Gabhawalla says.
Octroi, which will be subsumed in GST, will result in a loss of Rs 7,000 crore for the BMC. Shiv Sena legislators had on the floor of the Rajya Sabha asked for direct compensation to the local body, instead of development via the state. They had also asked for annual incremental compensation.
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