States’ service sector to generate less revenue after GST rolls out

The states’ service sector will generate less revenue after the Goods and Service Tax (GST) is rolled out.

The Dollar Business Bureau

Ruling out the earlier predictions that the states’ service sector will generate more revenue after the Goods and Service Tax (GST) is rolled out, Gulati Institute of Finance and Taxation (GIFT) said this could be a wild dream to chase.

According to GIFT associate professor Jose Sebastian, the study undertaken by states highlight that states were responsible for only 1.30% of central service tax collection in 2012-13. The state’s service sector is dominated by small-scale businessmen, who fall below the proposed GST threshold of Rs.10 lakh.

"What matters is not the size of the service sector per se, but the presence of taxable services and the size of service providers," Sebastian said while presenting his research paper at the GST dialogue organised by the Institute for Sustainable Development and Governance.

Major Indian states such as Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu and West Bengal account for account for nearly 63% of service tax collections.

The paper predicted that the benefit of GST would come largely from the e-commerce sector.

The GIFT paper also said that GST is not an answer to the fiscal problems of the state. “Even if it is assumed that GST will bring Rs.5,000 crore of additional revenue, it is not going to have much of an impact on the fiscal front when the state is going to have a revenue deficit of Rs.18,000 crore in the financial year 2016-17.”

The Dollar Business Bureau - Aug 20, 2016 12:00 IST