Entry taxes may be subsumed under GST3 min read . Updated: 17 Oct 2013, 11:35 PM IST
Government plans to do away with the entry tax as per the revised draft of the constitution amendment Bill
New Delhi: Entry taxes—or taxes levied on goods while entering a state—are set to be subsumed under the goods and services tax (GST).
The central government has proposed doing away with entry taxes in the revised draft of the constitution amendment Bill, government officials familiar with the development said. State governments, with the exception of Maharashtra, may also concur with the revised terms.
State governments either levy entry tax themselves or delegate the power to local bodies. The constitution amendment Bill says that entry tax levied and collected by a local body will not be a part of the GST, a clause put at the behest of the Maharashtra government. Octroi, levied in Maharashtra, is an example of an entry tax that is levied by local bodies.
This created a lot of confusion and opposition from state governments, as many of them levied the entry tax themselves and gave the proceeds to local bodies such as municipalities and panchayats.
“The centre has proposed completely subsuming all types of entry tax under GST. It has included these in the revised version of the constitution amendment Bill," said one of the officials cited above. “Most of the state governments are also in favour of subsuming entry tax though there is opposition from one or two states," the official said.
The passage of the Bill is crucial for the implementation of the GST.
The finance minister plans to table the Bill in the winter session of Parliament. It has to be approved by a two-thirds majority in both the Houses of Parliament and ratified by more than half of the state assemblies.
The standing committee on finance, which examined the Bill, also proposed doing away with the entry tax. But to soften the blow on states, it recommended that states collect entry tax for distribution to local bodies instead of leaving it to be collected by different local bodies.
The empowered committee of state finance ministers is to meet on 21 October to discuss the Bill.
In its previous meeting, the empowered committee set up a sub-committee to reconcile the recommendations of the standing committee, the revised draft of the Bill, and the decisions taken by the states in their meeting in Bhubaneswar in January over the design of the GST.
During deliberations with the standing committee, industry lobby group Confederation of Indian Industry (CII) stressed that entry taxes impose a major cost burden on the industry and are a deterrent for their operations and expansion plans and suggested that it should be completely subsumed under the GST.
“The problems get compounded when entry taxes are levied on the industrial inputs and on transit sales. Such taxes go against the concept of the common market. Further, entry tax has been a subject of protracted litigation at all levels... Continuation of entry tax outside the GST would perpetuate such complexities and litigation and impose barriers to trade," CII said.
“All states know, the way jurisprudence is evolving, that entry tax cannot be defended legally. It only applies to goods that are brought into a state and not on those goods that are produced locally. It is sort of a customs duty that is being levied," Poddar said.
“The industry has been demanding that entry tax be completely subsumed under GST," he said.
“At the end of the day, no state government is prepared to lose money under GST. States will be paid compensation for revenue loss under GST for the first few years. So retaining entry tax only for revenue considerations does not make much sense," he added.
Besides Maharashtra, the states that levy or levied entry tax include Haryana, Gujarat, West Bengal and Punjab.