How will goods and service tax impact state revenues?
The tax on goods and services (GST) will soon be implemented. This is a value added tax system (VAT), which includes a series of central and state taxes. How could the GST impact on state governments? We examine the finances of the 12 large states.
In a VAT system, each person in the value chain receives a credit contribution on the tax paid by previous people. This is an incentive to make sure that the previous person has paid taxes. When VAT was introduced for sales tax there is a United States recorded an increase in the rate of growth taxes (although there may be other factors such as higher nominal domestic gross domestic product growth). While special taxes, service tax and tax credits permit sales tax on their silos, it integrates and allows the GST tax credit on such taxes.
TVS includes various taxes levied by States, including sales taxes, entertainment tax and entry tax, with the exception of excise tax on alcohol and the sale of alcohol and petroleum products. We do not have disaggregated data on the sales tax on alcohol.
Tax revenues to subsidize (more income related to the sale of alcohol) accounted for 46% of government tax revenue in 2015-16. Excluding the sales tax on alcohol, which will continue to be taxed separately United, including billing will be less than 46% of tax revenue itself.
Will be compensated United for any shortfall in revenue collection due to the implementation of GST in the early years. The baseline is assumed to be a 14% increase compounded from 2015-16. On average, the growth in tax revenues subsumed for these states increased by 14% between 2010-2011 and 2015-16. This is not adjusted for sales tax on alcohol and oil products. However, as the GST also includes some core taxes (such as the consumption and service tax) and states getting half the share, there may be a difference in tax base and tax growth.