DNA Money Edit: Arbitrary state taxes threaten the very tenet of GST

The auto companies that took the lead and reduced prices of cars and two-wheelers in the goods and services tax (GST) regime are now baffled over the prospect of state governments hiking vehicle registration tax. Most manufacturers had slashed prices post-GST, with cuts ranging between 3-7%. But for instance, the Maharashtra government, facing a major revenue loss after octroi and local body tax were abolished, has just smothered the excitement by slapping an additional 2% additional tax on all private vehicles. This clearly deprives customers of the lower prices promised in the GST regime. Some other states are also mulling similar proposals to mop up additional revenues.

In Tamil Nadu, the government finally agreed to set up a committee to study the 30% municipal tax freshly imposed on movie tickets. Over 1,000 cinemas were shut since July 3 protesting the move to charge municipal tax on top of the GST fixed at 28% for tickets above Rs 100 and at 18% for tickets valued up to Rs 100.

Some states, including Maharashtra, are also looking at increasing property tax by 1-2%. If the hike is made applicable, it will more or less nullify any minor fall in taxes under the GST. Such arbitrary hikes in state taxes are threatening to defeat the very tenet of the one-nation one-tax narrative. What is important for states, at least in the initial phase, is to focus on customers and see that they are being able to enjoy the fruits of the new tax regime. They can start counting the losses a little later.