Reality check: States still stare at plenty of problems

As the nation celebrates first anniversary of GST, it’s far from being perfect -- and the system is still not foolproof.

As far as Karnataka is concerned, there are many negatives than positives. As per the data available with the Finance Ministry, the GST collection till now has been in excess of Rs 9 lakh crore in the country. Out of this, Rs 1,53,518 crore is CGST, Rs 4,65,668 crore is IGST, and Rs 2,19,395 crore is SGST.

While entire Rs 2.19 lakh crore is going to kitty of the states, the rest is up for allocation for the states as per GST Act and the Fourteenth Finance Commission.

According to the tax devolution, 42% of the tax revenue collected by the state government goes to the states. The share of various states is dependent on the various elements -- population of 1971 (17.5) and population of 2011 (10).

Although, the implementation looks satisfactory till now, but in case fifteenth finance commission weightage is adopted, it might evoke sharp reaction from Karnataka.

The ToR mandates the Commission to use 2011 population for tax sharing and devolution of resources instead of 1971 population as was the practice in the past. Between 1971 and 2011, except Telangana, population shares of four southern states in total declined from 22.01% to 18.16%. However, most of the southern states, including Maharashtra are net producers than the consumers, and it might render them with lesser revenue, despite having higher productivity.

As per a senior GST official, this is a serious concern, and the fears of the southern states aren’t unfound in this regard. According to the official, Karnataka has earned close to Rs 25,000 crore of revenue post attribution, after GST implementation. Though, due to the partial transition to the new tax regime, the absolute comparison between the previous tax regime and the present regime, the indirect tax collection for Karnataka has gone up a mere 3%-4%, against the assurance of 14% by the Centre, before implementation of GST.

The average revenue gap of all states for last year is around 17%. As a result, during the last financial year an amount of Rs 41,147 crore was provided to all the states to ensure that the revenue of the States is protected at the level of 14% over the base year tax collection in 2015-16.