Continued VAT uptick suggests states likely to benefit from GST

Comments 0
RBI report on state finances shows VAT revenue has grown faster than states' overall tax revenue in 3 yrs. Express RBI report on state finances shows VAT revenue has grown faster than states' overall tax revenue in 3 yrs. Express
SummaryRBI report: State finances shows VAT revenue has grown faster than states' overall tax revenue in 3 yrs.

of excise, customs duty and service tax by the Centre grew just 13.7% in 2011-12 and 21% in 2012-13.

Clearly, states are reporting higher tax revenue growth than the Centre, the primary reason why their fiscal consolidation has been better while the Centre's has slipped considerably. To increase their own tax revenue, many states have raised taxes on tobacco and liquor products and some have benefited from simplifying procures that enhanced tax compliance. Analysts, however, point out that even though VAT was meant to lead to harmonisation of rates, this hasn't actually happened, with the tax being levied at rates ranging from 1% to 15%.

States that embraced VAT in 2005-06 had seen higher-than-historical growth in their sales tax/VAT revenue in the 2005-08 high-growth period also, establishing that the VAT system generates incremental revenue.

In states' revenue kitty, tax revenue accounts for the bulk, of which their OTR forms the major chunk, completed by the states' share in the central taxes. Within tax revenue, the largest item is VAT/sales tax followed by taxes on property (stamp duty and registration fee), state excise on alcohol and the taxes levied on vehicles. (To illustrate, 80% of Uttar Pradesh's estimated revenue of Rs 1.77 lakh crore this fiscal comes from taxes and within this tax revenue, over half will come from the states' OTR, of which 60% will be from sales tax/VAT/CST).

RBI deputy governor Urjit Patel says in a foreword to the report released on Wednesday: “State budgets for 2013-14 indicate a further move towards fiscal consolidation... During 2013-14, the revenue surplus-GDP ratio is budgeted to increase to 0.4% (from) 0.2% in 2012-13, contributing to a reduction in the gross fiscal deficit-GDP ratio to 2.1% (from) 2.3% in 2012-13. Revenue surplus is budgeted in 22 out of the 28 states in 2013-14.”

States' own revenue and transfers from the Centre as a proportion to GDP increased in 2012-13 (RE) over 2011-12. A higher own revenue-GDP ratio was due to increase in both OTR and own non-tax revenue as ratios to GDP in 2012-13. “While states' OTR-GDP ratios recorded an increase primarily due to increased collections under 'stamp and registration fee', VAT and state excise, the increase in states' ONTR-GDP ratio was due to higher receipts from general services, education, sports and art and culture. Current transfers from the Centre as a ratio to GDP also improved following an increase in the share of

Single Page Format
Ads by Google
Reader´s Comments
| Post a Comment
Please Wait while comments are loading...