Swamy's quick pill for states vs Centre GST showdown: Revive state excise tax till COVID is over

Various state governments have locked horns with the Centre over GST compensation

subramanian-swamy-week-sanjoy-ghosh BJP leader Subramanian Swamy | File

One of the significant areas of loss of revenue to both the Centre and the state governments due to the pandemic-induced economic slowdown is GST. Unsurprisingly, various state governments have locked horns with the Centre over GST compensation. Now, outspoken BJP leader Subramanian Swamy has suggested a quick remedy for the Centre to get over the GST stalemate—go back to state excise tax till COVID is over. 

"After hearing AITC (Trinamool Congress) Lok Sabha MP Mahua Moitra on GST, I am convinced that scrapping the Jaitely-PC GST Act, which CM NM (Modi) had opposed, should be suspended because MoF (finance ministry) is unable to refund to states the mandatory Rs.2.3 lakh crore as per law. Revive state excise tax till COVID is over," Swamy tweeted on Tuesday. 

For the uninformed, excise tax is a duty on manufactured goods, which is levied at the moment of manufacture, rather than at sale. It is considered as an indirect tax that the producer or seller, who pays the levy to the government, is expected to recover by raising the price paid by the eventual buyer of the goods. These are imposed in addition to an indirect tax such as a sales tax or value-added tax (VAT). 

In the pre-GST era, there were many indirect taxes levied by both the state and the Centre. States mainly collected taxes in the form of VAT. Every state had a different set of rules and regulations. However, GST has replaced many indirect taxes in India such as the excise duty, VAT and services tax, though certain items like fuels are still not under the GST umbrella. 

Excise duty is generally a central levy, but not all levies are raised by the Centre. Excise duty on production of few items, including that on liquor, is imposed by state governments. Excise duty on alcohol, alcoholic preparations, and narcotic substances is collected by the state government and is called “state excise” duty. For most of the states, excise duty was the second largest tax revenue after sales taxes (state VAT).

States cannot impose separate rates unless it is recommended by the GST Council. However, for certain products like alcohol (other than for human consumption), alcoholic preparations and narcotic substances, the states have continued the levy of current taxes like VAT or state excise duty over and above the GST. 

Sales tax, state GST, state excise, stamps and registration fees are the major tax revenue earners for the states. Governments find it easier to increase tax rates on items already taxed rather than increasing the tax base. Hence, with the Centre unlikely to relent on GST compensation, many states might, in order to make up for the shortfall, increase taxes on goods that are outside GST such as alcohol excise, stamp and registration duties on properties, and excise duties on petrol and diesel.

TAGS

📣 The Week is now on Telegram. Click here to join our channel (@TheWeekmagazine) and stay updated with the latest headlines