States to earn Rs45,000 crore more revenue post GST: StanChart report2 min read . Updated: 30 May 2017, 05:47 PM IST
The additional strain on fiscal deficits can be easily absorbed, as impending GST implementation in mid-2017 should mean higher revenues for all states, says StanChart
New Delhi: Goods and Services Tax implementation will lead to a revenue gain of about Rs45,000 crore for all states with six of them, including West Bengal and Punjab, being the key beneficiaries, says a Standard Chartered Bank report.
It said the additional strain on fiscal deficits can be easily absorbed, as impending GST implementation in mid-2017 should mean higher revenues for all states. “While it is difficult to accurately estimate the impact of GST on revenue, our initial calculation indicates a total gain of Rs35,000-45,000 crore (0.2-0.3% of GDP) for all states.
This should help absorb most of the additional expenditure," the report said. Stating that GST will be the swing factor for states fiscal health, StanChart report said 1 July rollout has the potential to increase states aggregate revenue given that the Central government has agreed to compensate them for any revenue loss for five years after implementation.
It estimated that six states -- Bihar, Uttar Pradesh, West Bengal, Rajasthan, Madhya Pradesh and Punjab -- will be the key beneficiaries of higher revenues due to the shift to GST from current production-based taxes. “Gains could be significant in some cases," it said while giving example of Uttar Pradesh that is likely to gain additional revenues equivalent to 1% of GSDP in the post-GST era, which would narrow its fiscal deficit. In contrast, some states like Gujarat, Tamil Nadu and Haryana will lose revenue following GST implementation, StanChart said.
“However, they will be compensated by the Centre for the first five years after implementation. A significant deterioration in their fiscal health is therefore unlikely unless compensation by the Centre is delayed," the report noted. While GST is expected to be revenue neutral for the country, some consumption driven states will gain revenue, while certain manufacturing states may lose.
“This is because GST will mark a shift away from production- to consumption-based tax," it said. Overall, the states are likely to achieve higher revenues in the post-GST phase, including compensation from the Centre, the report added. “In the initial years (FY18-FY19), most of the surplus is likely to be used to reduce fiscal deficits, as states will not know the actual surplus that might accrue to them post- GST," it said.
Single biggest taxation reform since Independence, GST will subsume 16 different levies and transform India into a common market for seamless transfer of goods and services. The Centre and states have already fitted over 1,200 goods and 500 services in tax slabs of 5, 12, 18 and 28%.
Besides, a cess would be levied on certain demerit and luxury goods and the proceeds from it will make good any shortfall in revenue to the states post GST.