Even as the sticky Centre-state issues regarding the goods and services tax (GST) remains unresolved, the empowered committee of state finance ministers has decided to include entry taxes, which account for around 10% of states' revenues, in the proposed comprehensive indirect tax. All entry taxes levied by state legislatures that are not in the nature of octroi and the proceeds of which go to local bodies shall be subsumed into GST, Jammu and Kashmir finance minister Abdul Rahim Rather, who was elected as chairman of the panel on Monday, told FE.
That decision has resolved a major cause for dissent, as states like Madhya Pradesh, Maharashtra and Karnataka had opposed subsuming these levies in the GST.
Rather also promised efforts to bring dissenting states together for a “grand deal” on the new regime.
But he has an uphill task in resolving the differences on issues like the threshold where the tax would kick in, the relative influence of the Centre and states in the powerful GST Council and the confusion over the possible dual control on the trader, with both Centre and states taxing the same transaction.
“Entry taxes are going to be subsumed, provided they are not in lieu of octroi. If entry tax is in lieu of octroi, then it will not be subsumed,” Rather said. Entry taxes that are levied in lieu of octroi will continue to exist even after GST comes into force and the entities that levy them will keep getting that revenue, he added.
Experts said that about 10% of states revenue are from entry taxes, but quantifying it precisely is difficult considering the very litigious nature of this levy. Madhya Pradesh, for example, collects Rs 2,000 crore a year from entry taxes. Union finance minister P Chidambaram has already offered states the flexibility to add a small margin, say half a percentage point, to the state component of the revenue-neutral GST rate so that they can make up for any loss of revenue from subsuming entry taxes within GST.
Entry taxes and octroi are essentially the same tax but levied for different purposes. While entry tax collected by state governments is used for the welfare of trade and industry, octroi is levied to meet the financial needs of a local body, explained Prashant Deshpande, senior director at Deloitte in India. Traders get credit for the entry tax that they pay against their value added tax (VAT)