State to raise its GST concerns with Centre


Gandhinagar: The Gujarat government has decided to raise concerns about likely impact on the state’s revenues, in case the Government of India decides to implement the Goods and Services Tax (GST) regime across the country in the next few months. The Gujarat government will raise its concerns at the Empowered Committee’s meeting of state finance ministers in Kolkata on May 14. State finance minister Saurabh Patel will make a representation at the meeting.

According to a report from the state commercial tax department that was submitted recently to the Union ministry of finance, Gujarat will face a direct loss Rs 10,800 crore per annum in revenues from 2016-17 if the GST regime is implemented. Lower compensation for central sales tax (CST) foregone will be an added loss to state. The Gujarat government will raise this and other issues.

Patel said: “We will raise the issues of compensation to states, dual control of central and state government over GST collection, sharing of revenues between states, collection of GST on e-commerce, GST on exports, ITC (input tax credit), GST on petroleum products, real estate etc,. There is no clarity on the mechanism to collect GST in the service sector, as the state government doesn’t have the expertise or a mechanism to collect tax from service sector units. Special assistance will be required for registration and collection of GST from service sector units. All these issues will be raised at the empowered committee meeting.”
At present, the state’s average income from VAT and other state taxes is around Rs 62,000 crore per annum (VAT alone is Rs 45,000 crore and the state’s share in central taxes is around Rs 14,000 crore). The state government’s concern is how to offset around Rs 76,000 crore of revenues with at least 20% annual growth. According to the estimates of the Empowered Committee, apparently only about 30% of all tax revenues of the Centre will be subsumed into GST and the majority of direct taxes of the Centre will remain untouched by GST reform. On the other hand, the mainstay of states in terms of revenues is indirect taxes, of which VAT is the largest component in most states. Therefore, almost 65% of total tax revenues of the states are getting subsumed into GST. In Gujarat, which does not have any significant revenues from excise, the share of state tax revenues to be subsumed will reach 81% of the state’s tax revenues.

Further, the loss due to abolition of CST will be an additional loss for states. This additional loss will be larger for states that have a larger manufacturing sector and are net exporting states in terms of inter-state trade.

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