GST may include all entry taxes

In a move the Cen­ter is going to pro­pose sub­sum­ing in the pro­posed goods & ser­vices tax (GST) all types of entry tax, includ­ing the one for local bod­ies. The Bill also seeks to sub­sume petro­le­um prod­ucts in GST but keep alco­hol out of it.

The Con­sti­tu­tion Amend­ment Bill tabled in the 15th Lok Sab­ha by the Unit­ed Pro­gres­sive Alliance gov­ern­ment had pro­posed to sub­sume in GST only the gen­er­al entry tax — those on import of goods in a state — while keep­ing entry tax in lieu of octroi (Etiloo, levied by munic­i­pal bod­ies on goods enter­ing a local area) out­side its purview.

States had argued, after intro­duc­tion of GST, they should be empow­ered to col­lect entry tax for dis­tri­b­u­tion to local bod­ies, instead of local bod­ies col­lect­ing those, to avoid harass­ment of traders at check posts. Any kind of entry tax will restrict free flow of goods and ser­vices and defeat the pur­pose of mak­ing India a com­mon market.

The rate of entry tax varies from state to state. West Ben­gal, for exam­ple, levies a flat rate of one per cent but the tax paid does not qual­i­fy for a set-off against val­ue-added tax. Bihar levies it on 35 goods at rates between two per cent and 16 per cent; petro­le­um prod­ucts and alco­hol at the high­est rates. Uttar Pradesh fol­lows a sim­i­lar pat­tern. The rate in Mad­hya Pradesh is five-six per cent on most items. Select goods are taxed at only one per cent and, in such cas­es, a set-off is not allowed. The aver­age rate in Maha­rash­tra is five per cent.

If Entry tax is sub­sumed in GST, Maha­rash­tra will incur the biggest loss, of over Rs 16,000 crore. The state had opposed the pro­posed move, which was sup­port­ed by West Ben­gal, Odisha, Tamil Nadu, Ker­ala, and Uttar Pradesh.

Accord­ing to sources in state gov­ern­ments, Kar­nata­ka, which might lose about Rs 8,000 crore if Entry tax is not retained, has sup­port­ed the pro­pos­al. So have Gujarat and Bihar, because if Entry tax is kept out­side the ambit of GST, it would not be pos­si­ble for tax­pay­ers to claim the cred­it for pay­ment of entry tax in their returns.

Arti­cle 301 of the Con­sti­tu­tion pre­cludes states from tax­ing inter-state trans­ac­tions. This is meant to pre­vent bar­ri­ers to inter-state trade. Arti­cle 304 allows a state to impose tax on goods import­ed from oth­er states in line with the tax imposed on sim­i­lar goods pro­duced in that state, to avoid any dis­crim­i­na­tion between the two.

Before tak­ing the Bill to Par­lia­ment, the Cen­tre is like­ly to dis­cuss the draft Con­sti­tu­tion Amend­ment Bill with the empow­ered com­mit­tee of state finance min­is­ters, at their meet­ing, like­ly in the first week of December.

Once a broad under­stand­ing is reached with states, the finance min­istry will table the Bill in the Lok Sab­ha before the end of the win­ter ses­sion on Decem­ber 23. The gov­ern­ment is try­ing to meet the April 2016 dead­line for intro­duc­tion of GST.