States with a strong manufacturing base such as Maharashtra, Gujarat and Tamil Nadu are top performers in Goods and Services Tax (GST) revenue collection, according to new data that should ease the fears of industrialized states that they may lose out on tax receipts in the indirect tax regime.
Official data from GSTN, the company that processes tax returns, shows that Maharashtra and Gujarat collect the highest amount of state GST (SGST) on a monthly basis, followed closely by Tamil Nadu and Karnataka, a state with strong IT industry.
Manufacturing states had expressed apprehensions during the Centre-state negotiations for introducing GST that they may lose out in the new tax regime which favoured consuming states in terms of receiving the proceeds of taxes on inter-state supplies.
That is because GST is a destination-based tax on consumption. In the pre-GST era, exporting states received proceeds of a 2% central sales tax (CST), which got subsumed into GST.
Data from GSTN showed that in the years before GST was implemented—from FY13 to the June quarter of FY18 —Maharashtra used to collect the highest amount from those taxes that were eventually subsumed into GST.
In the new indirect tax regime, Maharashtra still remains the largest recipient of SGST, the state component of GST.
In FY16, for which data is available, Gujarat was the fifth largest beneficiary of the taxes that were eventually subsumed in GST, lagging behind Maharashtra, Karnataka, Uttar Pradesh and Tamil Nadu, but it emerged as the second largest recipient of SGST under the new indirect tax regime
“States with a large manufacturing base are also large consumers of goods and services, which makes them big revenue earners,” said a government official, who spoke on condition of anonymity.
In September, overall GST receipts of the Centre and states showed a 26% jump over the year at ₹1.48 trillion, the seventh straight month of GST revenue receipts remaining above the ₹1.4 trillion mark.
Among large state economies, Maharashtra reported a 29% year-on-year jump in overall GST receipts, Gujarat reported a 16% improvement, Karnataka a 25% jump and Tamil Nadu a 10% increase.
Although some of the state governments, especially those ruled by parties that are in the opposition in Parliament, have been pitching for continuation of GST compensation to them from the central government, no decision on this assistance, which expired at the end of June this year, has been taken.
With GST revenue collection growth remaining faster than the economic growth rate, the Centre has been able to convince states that the revenue buoyancy itself will take care of states’ financial needs
Central and state authorities have for now kept in the backburner a revenue-enhancement plan to raise the tax rate on certain high-end consumer goods as inflation remains above the central bank’s tolerance level.
While there are a large number of small businesses among GST-registered entities, the bulk of revenue collection comes from large taxpayers with revenues of more than ₹500 crore. This trend bolsters industrialised states’ revenue collection capabilities. Proprietorships account for 13% of GST revenue receipts while public limited companies contribute 35%, as per official data.