Amid fears of erosion of fiscal autonomy of the states due to the introduction of the proposed Goods and Services Tax (GST), the Orissa government has urged the Government of India to allow the states to levy a specific surcharge for a limited period to tide over some specific contingencies and exigencies.
Orissa has suggested that the tax rates as decided may be treated as floor rates and flexibility may be given to the states to increase the rates within a band of two per cent.
"Admittedly, the new tax regime will substantially shrink the fiscal capacity of the states. There would be some specific contingencies and exigencies in which the states may find themselves short of resources for meeting their legitimate expenditure commitments. The states should be given the power to levy a specific surcharge for a limited period to tide over some specific contingencies and exigencies.
Tax rates as decided may be treated as floor rates and flexibility may be given to the states to increase the rates within a band of two per cent”, state finance minister Prafulla Chandra Ghadai said at the latest meeting of the Empowered Committee of State Finance Ministers held on September 20.
Like many other states, Orissa has also suggested that the Central Sales Tax (CST) may continue at two per cent till the Integral GST Mechanism is well established.
Talking on the issue of compensation to be given to the states because of loss due to the new tax regime, Ghadai said, “It has been suggested to adopt a dual rate of six per cent and 10 per cent for goods and eight per cent tax rate for services under State GST (SGST). The proposed SGST rates are lower than the state RNR (Revenue Neutral Rate) and the states are likely to incur loss. With the abolition of CST, the tax base of the states will be substantially eroded which cannot be adequately compensated by the yield from the service tax.”
He further said that, taking into account the actual of 2007-08 and keeping in view the service tax base estimated by the National Institute of Public Finance and Policy, our revenue loss will be about Rs 900 crore at the proposed tax rates.
It is proposed to compensate the states for revenue loss for four years only but it may not be sufficient for all the states to achieve revenue neutrality within four years.
Therefore in case, the states continue to sustain revenue losses even after four years, compensation should be available to them.
Orissa has already submitted its claim of compensation of Rs 554.07 crore towards CST loss and has furnished a certificate of the Accountant General in support of CST collection for 2009-10.