The goods and service tax (GST) has been implemented from July 1st, 2017 in the nation. This subsumed all the indirect taxes like service tax, VAT, excise duty into one including the taxes under centre and state. After the GST, some states are likely to get affected as the nature of taxation is going to change and the states need to adopt the latest methodology in order to ensure proper generation of revenue under GST.
What was Old VAT System?
If we talk about the old VAT system, every individual in the value chain is entitled to availing the input credit on the tax paid by the other person. A decade ago, when the VAT got introduced for the sales tax, states witnessed an increase in the tax growth. The service tax, excise and sales tax allow tax credits but GST merges these taxes into one and allows tax credit across each of them.
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Impact of GST on State Revenues in India
GST also subsumes the taxes levied by states, including entry tax, sales tax and entertainment tax, excluding the revenue that comes from the sales of alcohol, excise on alcohol and petroleum.
It is speculated that the exclusion of sales tax on alcohol will continue to be taxed separately by states.
The government has however agreed to compensate the states for any downfall in revenue for the first five years of the GST rollout. The growth has been assumed for 14 percent from 2015-16. If the stats are to believed, the revenue growth from the subsumed taxes in the states rose by 14 percent in between 2010-11 and 2015-2016. The GST also subsumes some central taxes such as service tax and excise.
The abolishing of the Foreign Investment Promotion Board (FIPB), which served as the guard for foreign direct investment (FDI) into the nation for the past 25 years, is more indicative than nominal as over 90 percent of inflow into the country in recent years has been via automatic route.
The government is managing to attract more foreign investors and tell them the benefits of investment under the GST regime. Although, there are several pending proposals in more than 10 sectors that need approval.
Impact of GST on: