The Gujarat government has objected to the proposed formula for sharing with states the revenue that would be earned as Goods and Services Tax (GST). The central government has already announced that it will implement GST from April 2016.
Gujarat's main objection is that as it is a manufacturing state, it will suffer major loss of revenue under the proposed formula which follows a destination-based consumption tax model. The state has said that it will directly lose 2 per cent share in Central Sales Tax (CST) as well as income from other taxes.
Sources in the state government said that the central government has, prime facie, agreed to compensate Gujarat with 1 per cent additional tax revenue in addition to the uniform GST share, but only for two years. The state government, however, has demanded a larger share and stated that two years of compensation is not enough.
The Centre's argument that the states will get additional benefit of service tax is not convincing as there is no clarity on it. (Currently, service tax is entirely with the Centre.) Gujarat has a good service industry but it cannot match the tax income from the manufacturing sector, said the sources in the state government.
At present state's average income from value added tax (VAT) and other state taxes is around Rs 62,000 crore per annum —VAT alone Rs45,000 crore — and its share in central taxes is around Rs 14,000 crore. The state government's concern is to get around Rs 76,000 crore with at least 20 per cent per annum growth in tax revenue.
A senior official of the state government involved in negotiations with the Centre over GST said: "Our major sources of income are VAT and CST but in a consumption-oriented tax system, Gujarat may lose its current income and may not be able to achieve its revenue growth projections."