State Bank of India (SBI) Research in its latest report has stated that Indian states are expected to gain an additional revenue of Rs 37,426 crore in the financial year 2019, on the back of sharp increase in crude oil prices over the last few months and better tax collection under Goods and Service Tax (GST) regime. It also found that on an aggregate level, the states have gained Rs 18,698 crore in additional revenue in FY18. Besides, it observed that the impact of GST on tax earnings is minimum except for in a few states.
According to the report, out of 24 states, revenues of 16 States have increased more than 14 percent baseline/ mutually accepted minimum tax growth rate between the Centre and the states post-GST rollout below which the states have to be compensated. It indicated that post-GST implementation in July last year, the tax revenue of the states has gone up in FY18 due to increased tax compliance and broader tax base. It noted that Gujarat, Haryana, Maharashtra, Chhattisgarh, Jharkhand and Punjab have gained the maximum due to GST.
However, the report pointed out that certain States like Karnataka, Bengal, UP, MP and Assam have reported a decline in tax collection post-GST, due to the changes in the nature of taxation as GST has subsumed indirect taxes such as service tax, VAT, excise duty, entry tax, entertainment tax into one, including the taxes under the Centre and the states which contribute to an aggregate of over 55 percent of tax revenue of these states.
Expecting the need to optimize tax revenue for funding social security programmes, SBI Research said that there is a need to insulate consumers from adverse price shocks. The report concluded that states could come forward and rationalise their VAT rates. After all, crude price falling much below $70 a barrel looks uncertain now.