GST finally comes into effect; producing states likely to receive compensation for their revenue loss

After several years of negotiations, deliberations and efforts, the country has finally implemented the Goods and Service tax, which subsumes all indirect taxes into one. The consumer states are likely to get more benefit from this tax system than the producing states such as Tamil Nadu, Maharashtra, Haryana, Gujarat, Karnataka and Haryana, as the Goods and Services tax is a destination-based tax system. Earlier, when this problem was raised during the discussion session, the authorities agreed to give compensation to those producing states which are expected to suffer huge revenue losses due to the new tax system. The terms and conditions of the compensation have been articulated by the Fourteenth Finance Commission of India, which recommended the government to go ahead with its move to pay compensation. It is learned that the government is likely to pay hundred per cent compensation to those states, which is expected to suffer revenue loss, in the first three years, and in the fourth year and fifth year, the government is expected to give around seventy-five per cent and nearly fifty per cent compensation respectively. According to the report, the government will have to raise a huge fund of nearly fifty-five thousand crore rupees in order to fund the compensation program. In an effort to raise this fund, the government is going to impose an additional cess on some goods which come under or above the highest tax slab, twenty-eight per cent. A big question still exists unanswered: how will the producing states manage their revenue loss after the first five years.

Vignesh

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