on the issue.
These states also have support from Haryana, Gujarat and Maharashtra on the issue of losses from shifting to a destination-based tax on consumption. For instance, Haryana, which gets close to R5,000 crore by way of CST on inter-state movement of cars from the Maruti Suzuki plants in Gurgaon and Manesar, has demanded that it be allowed to retain about 20-30% of such revenue even after shifting to GST.
The state is willing to transfer only up to 70% of the tax on inter-state trade to the consuming states under GST. This demand, an official said, is inconsistent with the principle of GST.
“If it is not a destination based tax on consumption, it is not GST,” the official said.
Tax experts see no point in making compromises to the basic design of GST to suit the interests of states with strong manufacturing and service industries. “GST, worldwide, remains as a tax on consumption, based on the destination principle. Any compromise on GST’s design will be detrimental to achieving the goal of a common market,” said Harishanker Subramaniam, partner, indirect taxes, EY.
Globally, the principle of destination-based taxation is central to GST. States that have spent on infrastructure and have granted tax incentives to attract industry, however, find it hard to digest the fact that tax on inter-state trade would go to the consuming state.
North-eastern states have also pointed out to the central and other state governments that because of their abysmally low level of production of goods and services, receipts from the state component of GST that subsumes the current state-level value-added tax (VAT) will also be very low.
CST was lowered from 4% to 3% in 2007-08, and further to 2% in 2008-09 after the introduction of VAT.