Discuss the concerns of the states with respect to the Goods and Services Tax. To what extent, these concerns have been addressed in the current GST model as proposed in Constitution 122nd amendment Bill.

Published: February 6, 2016

Model Answer:
GST is a comprehensive indirect tax on manufacturing goods and services but, the state governments have the following issues over it:

  • A lower GST rate might mar their existing revenues and they may need to look up to the centre for compensation.
  • They are not ready with the information technology systems and the administrative infrastructure as there is a huge inequality in the IT infrastructure among the states.
  • GST being a destination based indirect tax regime would lead to drop in revenues of some states as it makesexports with zero taxes whereas imports are taxed on par. So, those states which are good at manufacturing sector will have less imports and less tax collection whereas, states with maximum imports will benefit from it.
  • Various state Governments have sought assurances that their existing revenues will be protected, fearing that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty.

The centre believes that dual GST will lead to better revenue collection for States. Furthermore; central government is also ready to compensate the revenue loss to state government for 5 years as demanded by states.

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