Chief Economic Advisor (CEA) Arvind Subramanian has said that the government needs to reconsider levy of one percent additional tax by states over and above Goods and Services Tax (GST) rate, as it could make intra-state movement of goods expensive and hurt the 'Make in India' campaign. In order to address concerns of the manufacturing states, the GST Constitution Amendment Bill has provided for an additional one percent tax for a period of two years.
The Constitution Amendment Bill to roll out GST which has already been cleared by the Lok Sabha has been referred to Rajya Sabha Select Committee which is expected to submit its report at the beginning of the next session of Parliament. CEA has said that “It (1 percent additional tax) has the potential to undermine Make in India. That is why we need to look at this provision carefully. This period that we have gained, some of these issues need to be looked at again.
Subramanian said that as GST is a destination-based levy, it would help the manufacturing states make good the loss of revenue but the irony of such an additional tax will be that it would favour international trade over intra-national trade, because every time a good passes a border it had to be an extra non Vat-able tax. He also cited an example that a good going from Gujarat to Tamil Nadu, crossing four states would embody an additional tax of about 4-5 percent, because it is 1 percent every state. That might make it easier to import into Tamil Nadu from Bangkok.