What was left to the state governments to decide included taxes on income, property and capital transactions, petroleum products, state excise and electricity duty.
State governments may still be lamenting that they lost their autonomy in fixing tax rates after the implementation of goods and services tax (GST). They may also be facing headwinds in the transition period and a drop in tax collections. Some are also facing challenges on near-term impact on inflation too. But the new tax regime, which attempts to standardise taxes across India, is likely to give a boost to state coffers in the medium to long term.
Nine state-level taxes -- such as state value added tax, central sales tax, purchase tax, luxury tax, entry tax (all forms), entertainment tax (except those levied by local bodies), taxes on advertisements, taxes on lotteries, betting and gambling and state cesses and surcharges -- were all brought under GST. What was left to the state governments to decide included taxes on income, property and capital transactions, petroleum products, state excise and electricity duty.
India Ratings said in a report that the state taxes that are subsumed in GST accounted for 55% of states' own tax revenues and grew at 14% during last five fiscals starting from 2011-12. There have been wide variations across states, with subsumed GST taxes growing at just 8.47% for Punjab during the last five fiscals but 39.7% for Telangana. If state taxes that are subsumed in GST grow at around 14% in 2017-18, the central government will not be required to compensate states for any revenue loss. The rating agency has calculated a healthy 16.6% annual growth in GST revenues of all states combined 2017-18 over 2015-16. Like the state VAT, GST's implementation will also bring in some efficiency gains.
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