Telangana has suffered a reduction in central assistance to the tune of Rs 4,600 crore this year
The Centre and the states are working on a new revenue neutral rate (RNR) for the Goods and Services Tax (GST) which is currently pegged at 27 per cent.
Hyderabad: The Goods and Services Tax (GST) set to be implemented by the Centre across the country from the next fiscal (2016-17) has set alarm bells ringing in the Telangana government. The finance department, after assessing the pros and cons of GST, has concluded that the state government will lose Rs 2,603 crore every year due to abolition of VAT, entertainment tax, luxury tax etc. following the introduction of GST. The government fears that it will have to bear a major financial blow if the Centre fails to compensate the states accordingly. While introducing VAT earlier, the Centre had agreed to pay Central Sales Tax (CST) to compensate states, but has failed to fulfill its promise so far and has been making only partial payments.
The implementation of GST would mean abolition of eight Acts of the state government including VAT. The state government would lose revenues from VAT, entertainment tax, luxury tax, lottery/ horse racing tax, professional tax, rural development cess, entry tax on motor vehicles and CST. According to the finance department’s report, at present, Telangana gets a major chunk of its revenues from VAT imposed on rice and food grains, amounting to Rs 700 crore. In GST, these items have been placed under the no-tax category.
TS also gets two per cent CST, which will come down to one per cent once GST comes into force. This would result in the state losing another Rs 831 crore. It earns another Rs 1,072 crore through taxes imposed on six items like entertainment tax, luxury tax etc. Though the Centre has promised to reimburse the deficit for five years after GST comes into force, there are apprehensions regarding this. That’s because the Centre had made similar promises when it had introduced VAT and reduced CST from four per cent to two per cent, but had made only partial payments.
“When VAT was introduced, the Centre was supposed to pay CST compensation to states, but it has paid only Rs 450 core so far. The state is yet to get Rs 4,000 crore,” said Etela Rajender, the finance minister, adding that the states feared that they would have a similar experience with GST too. He demanded that the Centre must pay compensation to states for the abolition of CST, before going ahead with the GST and added that Telangana would lose Rs 7,000 crore in revenues due to the abolition of CST.
He also said that the TS government was already facing severe financial problems due to the cutting down of several central schemes in the Union Budget this year. Telangana has suffered a reduction in central assistance to the tune of Rs 4,600 crore this year. He opined that the Centre should ensure that GST would not cause any loss to the states’ revenue and be a burden on the common man. He added that they had put forth their demands before the Centre and wanted it to consider them before implementing GST. “The Centre should ensure that states do not lose their self-sufficiency because of GST and they should not be made to beg before the Centre for funds,” he said.
AP seeks guarantee for losses:
Struggling to cope with the ongoing financial crisis and faced with a further prospect of losing about Rs 2,500-3,000 crore per month once the GST comes into force from April 1, 2016, the AP government has sought Constitutional guarantees that this revenue loss will be reimbursed by the Centre. AP finance minister Yanamala Ramakrishnudu on Monday said that the state would be at the mercy of the Centre if there was no Constitutional guarantee that the revenue lost due to introduction of GST would be compensated by the Centre, as was the case with CST.
AP stands to lose over Rs 1,000 crore every month on rice alone, once GST is introduced. The state will also lose revenue from VAT, entertainment tax, CST, luxury tax, taxes on lottery, betting and gambling, state cess and surcharges, entry tax, purchase tax etc. The present rate of taxes on tobacco products in the states are higher than the standard rate (20 per cent against 14.5 per cent) and if the standard revenue rate under GST is less than the existing rate on tobacco products, there will be considerable losses to the states.
There is pressure on state governments from social health organisations to increase tax on tobacco products in the interest of public health. AP government wants tobacco products and tobacco to be in the State List and that the states be allowed the flexibility to increase the rates of taxes for these products. Mr Ramakrishnudu felt that the balance of powers between the Centre and states enshrined in the Constitution was not tilted towards the states.
After the implementation of GST in AP, the rate of taxes in some items will come down and will increase on others. This will depend on the recommendations of the Empowered Committee comprising finance ministers of various states. According to a report prepared by the National Institute of Public Finance and Policy, combined AP (2012 estimates) will lose Rs 14,925.14 crore, excluding VAT on petrol and diesel and excise revenue per year, after introduction of GST.
( Source : deccan chronicle )
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