Maharashtra bats for 1% tax along with GST to compensate manufacturing states

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The Bharatiya Janata Party-led government in Maharashtra has asked the Centre to levy one per cent additional tax along with the goods and services tax (GST) to help manufacturing states make up for their revenue loss.  

According to the Maharashtra government, the state’s manufacturing sector is growing at an average rate of 6.2 per cent, contributing 21.3 per cent to the gross state domestic product.  

A government official, who is associated with the preparations for the GST regime, told Business Standard: “Maharashtra is a leading manufacturing state and with the introduction of GST, its revenue loss will be substantial. Therefore, the government is of the view that the Centre needs to urgently consider imposition of one per cent extra tax along with GST to compensate manufacturing states such as Maharashtra, Tamil Nadu and a couple of others.”

The Devendra Fadnavis-led government also wants the Centre to keep in mind the loss in local body tax (LBT), while providing compensation for five years since the launch of GST.

LBT is currently levied by 25 municipal corporations across the state, while BrihanMumbai Municipal Corporation recovers the Octroi duty. The government has estimated that with the shift to the GST regime, the loss on account of LBT and octroi duty will be Rs 14,000 crore.  

Another official referred to the present state of finances saying that Maharashtra has a public debt of Rs 3.5 lakh crore and the revenue deficit is estimated at Rs 3,644 crore by the end of 2016-17. The state government’s outgo towards salary, wages and pension was Rs 93,367 crore in 2015-16. It will have to bear an additional burden of Rs 21,500 crore for the implementation of the 7th Pay Commission recommendations.  

Maharashtra’s demand for additional tax on top of GST comes at a time when the Centre has been trying hard to get the crucial GST Bill passed in the Rajya Sabha. Also, the main Opposition party at the Centre, the Congress, has been demanding that the overall GST rate be capped at 18 per cent and the proposal of additional one per cent tax to compensate manufacturing states be scrapped.

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