Odisha’s tax administrators are under tremendous pressure as the tax collection in the State is showing a downward trend in the Goods & Services Tax (GST) regime. The GST collection has reported a shortfall of 31 per cent since August 2017.
“Following the switch over to the GST regime from Value Added Tax (VAT) administration from July 1, 2017, the tax collection in the State has come down,” said a senior officer of the State Government who is keeping a watch on the GST trends.
With the introduction of GST, five State taxes, VAT, Central Sales Tax (CST), Entry Tax, Luxury Tax and Entertainment Tax, had been subsumed in one tax.
This reduced the scope of tax collections by the State. Earlier, the State was used to levy three taxes, VAT, CST and Entry Tax, on goods. Now, it is only two taxes, GST and Service Tax.
Under the VAT regime, the State’s tax collection from the mining sector was 12% of the total collections. Now, it has come down. Eariler, the State used to collect an effective 6% tax in mining sector (5% VAT and 1% Entry Tax).
Now, it is only 5% GST and that too the State’s share is only 2.5% of the 5% tax. The collection from the MCL has fallen by Rs 550 crore in 2017-18.
The State used to levy 5% VAT on paddy, rice, dal, wheat, atta, maida, suji and likes. Now under the GST regime, these items are exempted from tax. So, the State is deprived of collections from this tax.
Odisha is not a consumers’ State as believed widely. Trading of fast- moving consumer goods and consumer durable goods is very low due to low per capital income. Mostly, food grains are consumed in the State. Now with the exemption of tax on most of the food grain, the scope for enhancing collection of tax has reduced.
In fact, manufacturing States have benefited under the GST regime. As the manufacturing States like Maharashtra and Tamil Nadu are also consumer States due to high per capita income, their GST collections are high compared to collections under the VAT administration. Maharashtra and Tamil Nadu have suffered a revenue shortfall of only 3%.
Under the VAT regime, the minerals bearing States like Odisha, Chhattisgarh, Jharkhand and Goa have suffered severely. While Odisha and Chhattisgarh’s revenue shortfall is 31%, that of Jharkhand and Goa are 26% and 23%, respectively.
However, the only consolation for Odisha is the provision of compensation for revenue shortfall. It is the Constitutional obligation of the Centre to compensate 100% of the revenue shortfall for five years from July 1, 2017. With 2015-16 as the base year, the compensation would be calculated taking a projected annual growth rate of 14% in tax collections.
Odisha has already received Rs 2,300 crore as compensation from the Centre towards the revenue shortfall between July 2017 and February 2018.
Unlike the CST compensation, the Centre is disbursing the compensation amount to the State on a bimonthly basis. In fact, the Centre is collecting the compensation money by levying cesses on aerated drinks, pan masala, tobacco and tobacco products and luxury cars. The cess rate is the difference between the effective tax on these items in the pre-GST regime and 28% of the GST rate.
The tax administrators in Odisha are, however, still optimistic about the GST collections. With the April collections showing an upward trend with netting of over Rs 1,000 crore, they are confident of a change in the situation.
Meanwhile, the registration of dealers under GST has gone up to 2,22,292. In fact, 83,993 dealers who were out of the VAT purview have joined GST now.
With a wide GST network base, the revenue collections are bound to go up in coming months, said official sources.