Maharashtra, India’s most industrialised state, might have adopted a resolution ratifying the amendments to the Constitution for enabling the Goods and Services Tax regime, but the BJP-ruled state continues to be in a bind over the rate of tax for the new tax regime.
While an expert panel under the Centre’s Chief Economic Advisor Arvind Subramanian has recommended a revenue-neutral rate of 15-15.5 per cent and most states are pushing for capping the rate at 18 per cent on goods and services, Chief Minister Devendra Fadnavis dropped indications that Maharashtra might just press for a higher rate of tax.
“We will demand a rate at which there will be no revenue loss to the state in the GST regime,” said Fadnavis, replying to a discussion on the bill in the Legislative Council.
Under the current indirect taxation regime in Maharashtra, goods are taxed at an average 13 per cent. If the rate of tax under GST was finalised at 18 per cent, the state’s share will average 9 per cent of collections. Based on this assumption, it means Maharashtra cannot meet revenue neutrality at 18 per cent. In absolute numbers, a preliminary estimate of the shortfall has been pegged at Rs 20,000 crore annually. But the state’s finance managers also feel that a higher tax rate could increase inflationary pressure and also make it difficult for the government to sell the new regime to the masses.
“We are working on it. The Finance Minister has sought the advice of economic and financial experts,” Fadnavis later told the Indian Express.
According to information, a team of economists has been tasked with the job of working out the precise impact of the new regime on the state coffers. They are expected to submit their report in the next three-four days, sources revealed. The state may press for a 19-20 per cent tax rate, an official said.
The government is also hoping that the new regime will plug tax leakages and ensure high collections. “A rough estimate says that about Rs 25,000 crore is evaded under the Value Added Tax regime, which is about 20-40 pc of the revenues from VAT. The new regime stresses on electronic compliance and will plug these leakages,” Fadnavis said in the Legislative Council.
The state might also push a revised share in devolutions, which is unlikely to be accepted. Maharashtra had earlier put forth a demand that it be permitted to levy a 1 per cent surcharge on GST but this was rejected by the Centre.
Fadnavis, meanwhile, refuted accusations that Maharashtra’s interest was being compromised for a better taxation regime nationally.
“The new tax structure works on greater handholding and communication between the Centre and the states for overall economic growth. Maharashtra is the growth engine that drives the economy. It is incorrect to presume that the Centre was overlooking the state’s financial interest while driving growth,” he said.
The CM further said that the new regime might work to the state’s advantage since the Centre would now pass on taxation benefits for services to the state. “The service sector accounts for 53 per cent of the state’s GDP at present,” he said. Meanwhile, Minister of State (Finance) Deepak Kesarkar, who hails from the Shiv Sena, announced that the Mumbai municipality and other local bodies would have the powers to collect entertainment duty in the new regime.