GST SHARE BETWEEN CENTRAL & STATE?
INTRODUCTION
The Goods and Services Tax (GST) is a comprehensive indirect tax levy on goods and services throughout India. It was introduced on July 1, 2017, and has replaced a number of indirect taxes levied by the central and state governments.
The GST revenue is shared between the central and state governments in a ratio of 50:50 for most goods and services. However, there are a few exceptions to this rule. For example, the revenue from the GST on alcoholic liquors is shared in the ratio of 40:60 in favor of the states.
The GST share between the central and state governments is determined by the following factors:
- The type of goods or services being taxed
- The rate of GST applicable
- The place of supply of goods or services
ADVANTAGES OF GST SHARE BETWEEN CENTRAL & STATE?
Uniform Taxation: GST replaces a complex system of multiple taxes with a single unified tax structure. The revenue-sharing between the Central and State governments ensures that both levels of government have a stake in maintaining a uniform tax system, reducing tax cascading, and promoting a seamless nationwide market.
Fiscal Autonomy for States: States have the authority to levy GST on the supply of goods and services within their respective jurisdictions. They can set their GST rates within a prescribed range, giving them fiscal autonomy and the flexibility to adapt to local economic conditions.
Revenue Stability: The revenue-sharing arrangement provides states with a stable and predictable source of revenue. It reduces their dependence on volatile revenue sources and grants from the Central government, making them less vulnerable to economic fluctuations.
Equalization of Resources: GST revenue sharing aims to achieve fiscal equalization among states. It helps bridge the revenue gap between economically advanced states and those with fewer resources, promoting balanced development across the country.
Reduced Tax Conflicts: The dual GST system minimizes tax-related conflicts between the Central and State governments. The revenue-sharing formula is designed to ensure a fair distribution of tax revenue, reducing the potential for disputes.
Enhanced Tax Compliance: The cooperation between the Central and State tax authorities under the GST regime helps improve tax compliance. This includes data sharing, information exchange, and joint enforcement efforts, reducing tax evasion and fraud.
Investor-Friendly: A unified tax structure with revenue-sharing provides a more investor-friendly environment by reducing inter-state tax complexities. It encourages businesses to expand their operations across state borders, leading to economic growth.
Simplified Taxation: GST simplifies tax procedures and compliance for businesses by providing a single point of tax collection. The revenue-sharing model helps maintain this simplicity by ensuring coordination between Central and State tax authorities.
Reduction in Black Economy: The GST system with revenue-sharing discourages the use of black money and promotes transparency in taxation. This can help reduce the size of the informal economy.
Cooperative Federalism: The GST regime fosters cooperative federalism by involving both the Central and State governments in tax policy decisions and revenue-sharing arrangements. It encourages collaboration and consensus-building among different levels of government.
DISADVANTAGES OF GST SHARE BETWEEN CENTRAL & STATE?
Complexity: The GST structure with both Central and State components can be complex to administer. This dual system requires coordination and cooperation between the Central and State tax authorities, which can be challenging to achieve in practice.
Revenue Conflicts: Disputes and conflicts can arise between the Central and State governments over the sharing of GST revenue. States may feel that they are not receiving a fair share of the revenue, leading to disagreements and potential legal disputes.
Revenue Uncertainty: The revenue-sharing arrangement can create uncertainty for state governments, as their revenue is dependent on the collection of GST at the national level. Economic fluctuations, changes in consumer behavior, or disruptions can impact GST collections and affect state finances.
Inequality: While the revenue-sharing model aims to promote fiscal equalization, it may not completely address the wide disparities in economic development among states. Some states may still face challenges in generating sufficient revenue, leading to continued economic disparities.
Administrative Challenges: Implementing GST with a revenue-sharing model requires robust administrative capacity at both the Central and State levels. Smaller states may struggle with limited administrative resources, leading to challenges in GST implementation.
Compliance Issues: Differences in GST rates and procedures between states can create compliance challenges for businesses operating across state borders. They must navigate varying regulations, which can be burdensome, especially for small and medium-sized enterprises (SMEs).
Interference in State Revenues: Some states may perceive the GST sharing mechanism as interference in their revenue-raising powers. This can lead to resistance from state governments and reluctance to fully embrace the GST system.
Financial Dependency: States may become overly dependent on GST revenue, which can limit their financial independence and reduce their ability to explore alternative revenue sources or fiscal policies.
Inefficiencies in Resource Allocation: The revenue-sharing model may not always allocate resources efficiently. States may use revenue for various purposes, and there is no guarantee that the funds will be invested in the most productive or necessary projects.
Political Challenges: The GST revenue-sharing mechanism can become a subject of political contention, leading to debates and disagreements between political parties and governments.
Here are the top 5 states with the highest GST collections in India in April 2023:
- Maharashtra (Rs. 33,196 crore)
- Karnataka (Rs. 14,593 crore)
- Uttar Pradesh (Rs. 12,902 crore)
- Gujarat (Rs. 11,201 crore)
- Tamil Nadu (Rs. 9,987 crore)
CONCLUSION
Overall, the GST is a major reform that has had a positive impact on the Indian economy. The GST share between the central and state governments is an important aspect of the GST, and it is likely to be a topic of debate for many years to come.
HOW AURIGA ACCOUNTING HELP YOU TO GST SHARE BETWEEN CENTRAL & STATE
GST Calculation: Auriga Accounting can calculate the correct GST amount based on the tax rates specified by the GST Council, segregating the Central GST (CGST) and State GST (SGST) components for intra-state transactions.
Input Tax Credit (ITC) Tracking: Auriga Accounting can help businesses track the ITC on GST paid on purchases, which can then be set off against GST liability.
GST Return Filing: Auriga Accounting solutions offer features to generate GST returns like GSTR-1, GSTR-3B, and more, making it easier to comply with filing requirements.
Compliance Alerts: Auriga Accounting can provide alerts and reminders for important GST-related deadlines and rule changes to ensure businesses remain compliant.
Reporting: Generate reports for internal review, auditing purposes, and to provide data needed for filing GST returns.
