Mumbai – Even though the revenue of the states might go past the CAGR (Compound Annual Growth Rate) 16.6% after GST, there are 11 states which still might face ₹ 9,500 crores loss due to the tax reformation. The center might have to compensate the loss this year, a close source said.
States like Andhra Pradesh, Gujarat, Himachal Pradesh, Odisha, Punjab and Tamil Nadu would require compensation of ₹ 5,600 crores from the center the revenue loss under GST. The states like Jammu & Kashmir, Goa, and Jharkhand, would require ₹ 3,900 crores compensation.
This action is required because it is expected that GST components of state owned revenue for the states to drop 15.5% under FY18 at the baseline of 16.6%. It should be noted that the input tax credit is available for goods and services under GST.
The compensation amount is to increase up to ₹ 9,500 crores in FY18. This theory is created on assumed fact that at the final stage of production of goods and services, the tax on service is accounted for 10%.
It should be noted that unlike VAT, which had been implemented in April 2005, GST implementation will likely bring some efficiency gain on tax mopping system.
In case, the 5% efficiency gain is added to the 10% input tax credit to the service tax, only five states including, Tamil Nadu, Odisha, Punjab, Gujarat, and Chhattisgarh, would be the right candidate for a compensation claim.
The state level taxes that are included in GST are central sales tax, VAT, luxury tax, entry tax, purchase tax, entertainment tax, lottery tax, surcharge, gambling tax and advertisement tax.
However, there are taxes which are not included in GST. These taxes are income, capital, property, state excise, and electricity tax. To enjoy the impact of GST, the states would have to be able to keep an eye on the taxes which are excluded from GST.