GST: Local bodies’ may lose revenue of Rs 12,000 crore


* State Government seeks compensation for next 10 years to fill up this revenue gap
By Kartik Lokhande
Responding to the Central Government’s call for pre-introduction comments on Goods and Services Tax (GST), Maharashtra Government has assessed the financial implications on State exchequer and revenue earnings of local bodies in this regard.
As per the assessment, if GST is introduced with the clause of subsuming entry taxes, local bodies will lose revenue of Rs 12,000 crore per annum. Losing such a huge revenue will put local bodies in trouble. Raising GST by 1-2 per cent also will not fill up the huge revenue gap for local bodies in State. Hence, the State Government has urged the Central Government to fill up this gap by compensating the State for next 10 years. At present, the Centre has proposed to compensate the States for transition to GST for three years.
The assessment regarding financial implications of GST on Maharashtra has been prepared by Finance Department. “We have assessed the situation and have sought aid from the Centre to fill up revenue shortfall. Central Government has assured the States to compensate for the revenue gap,” Maharashtra Finance Minister Sudhir Mungantiwar told ‘The Hitavada’. At present, the biggest financial strength of local bodies is entry taxes like octroi/Local Body Tax (LBT).
Maharashtra Government has expressed its reservations over Paragraph 279 (A) that grants veto power to the Centre regarding decisions of GST Council, and Paragraph 286 (3) that restricts State’s powers to levy tax on sale or purchase of notified goods like petroleum products and liquor. State has strongly advocated repeal of the provision under Paragraph 286 (3), as it would result in huge revenue loss on account of restriction on levy of sales tax on petroleum products and liquor.
GST proposal empowers Centre to levy GST on tobacco. Maharashtra Government levies 25 per cent tax on cigarette and tobacco, and 12.5 per cent on beedi. From these taxes, Maharashtra earns a revenue of Rs 700 crore per annum. If the Centre is empowered to levy GST, and State’s powers are restricted in this regard, it would affect the State’s revenue. Hence, Maharashtra has demanded empowerment of States to levy GST and sales tax on tobacco.
Also, Maharashtra Government has pointed out to the Central Government that during the transition to GST, the former would need compensation to a huge extent. Maharashtra is yet to get compensation of Rs 1,686 crore from the Centre for Value Added Tax (VAT) for the years 2006-07 and 2007-08. For Central Sales Tax, for the year 2009-10 and 2010-11, State is yet to get compensation of Rs 553 crore from the Centre.

(17-12-14)

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