Impact of GST on State Revenues

Important for Mains

Good and service tax subsume all union and most of all state’s Indirect taxes in one GST. But, States retained their right to impose tax on the excise on alcohol and petroleum. GST may impact the state revenue as under :-

1. States like Gujarat and Bihar where alcohol is banned raises the revenue form other means of taxing. But, these states may face challenge to raise revenue as GST not allows to impose other taxes.

2. As per current projection,none state going to loose revenue at high extend, but states will loose autonomy to maneuver the taxation policies. For Example, Kerala imposed Fat tax on the junk food. In future, None can impose such without GST permission.

3. GST being a destination based tax  will accrue more tax benefits to consuming states as a result manufacturing state will hamper.

Though there will be no impact on state revenue up to first 5 years as union government will compensate their revenue loss in case of any is there. However, there are certain concern regarding state revenues as listed above, the optimistic perspective is that GST will widened the tax bases and there will be more revenue collection. So, All state will get higher revenue in long term.

 

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