SBI report: States set to reap Rs 37,426-cr bonanza from GST, oil revenues
1. States are estimated to gain Rs 37,426 crore more in the current fiscal following improved collections from the Goods and Services Tax (GST) and revenue due to increase in crude prices, a report by the Economic Research Division of State Bank of India said on Friday.
2. The report, authored by Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India, is based on the budget documents of 24 States (not including North-Eastern States) for 2018-19.
3. Analysis showed that out of 24 States, revenues of 16 States have increased over and above of 14 per cent baseline/mutually accepted minimum tax growth rate between Centre and States, post GST implementation below which States have to be compensated. “We found that on an aggregate, States have gained by Rs 18,698 crore in revenue in 2017-18.
4. This report has come at a time when the new indirect tax regime will compete one year in a fortnight. This new system, subsuming 17 types of indirect taxes and and 23 types of cess of Centre and States, was introduced on July 1.”
5. The report further said that if gain in revenue figure is combined Rs 18,728 crore which States have gained due to increase in crude oil, the overall figure of Rs 37,426 crore will be sufficient to neutralise the revenue forgone of Rs 34,627 crore if States impose VAT only on base price. “If this was so the States could still cut the diesel prices Rs 3.75/litre and petrol prices by Rs 5.75/litre without impacting fiscal health of the states, the report said.
6. The Centre levies excise duty at specific rate (Rs 19.48 a litre on petrol and Rs 15.33 a litre on diesel) while States impose VAT/Sales Tax at ad valorem (percentage of value), ranging from 6 per cent to nearly 40 per cent. Now, if international prices of crude go up, base price for levying VAT/Sales Tax also goes up, benefiting the States most.
7. The report expects that while there is a need to optimise tax revenues for funding social security programmes, there is also a need to insulate consumers from adverse price shocks.“From that perspective, the States could come forward and rationalise their VAT rates. After all, oil prices in FY19 declining much below $70 look uncertain as of now,” it suggested.
Link of SBI Report publish in The Hindu BusinessLine
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