By letting states to tinker with agreed upon rates, the Centre is giving a silent burial to the idea of a 'one nation, one tax' rate dream

The easiest way to kill the character and purpose of Goods and Services Tax (GST) is to bring as many distortions as possible to it. One way of doing it is by imposing significant additional levies above the already agreed GST rates, terming it necessary to compensate losses for states. That is exactly what states like Maharashtra and Tamil Nadu are doing by forcing additional tax above GST rate on new vehicle purchases and on movie tickets, respectively.

Tamil Nadu has imposed an additional 30 percent tax on movie tickets in addition to the 28 percent (for tickets priced above Rs 100) and 18 percent (for tickets less than Rs 100) GST rates. That would make the majority tax incidence for the industry close to 60 percent. Reason: Only about 10 percent of the total share of movie tickets sold is below Rs 100 ones and these make up only about 6 percent of their revenues, a Times of India report quotes Deepak Asher, President, the Multiplex Association of India, as saying. In the pre-GST regime, the pan India tax rate on movie tickets was 19.5 percent. Hence the clamour in Tamil Nadu led by the likes of Kamal Hassan is least surprising.

Similarly, Maharashtra has imposed a one-time tax on registration of new vehicles. The state cabinet on Monday imposed an additional 2 percent tax on all vehicles, hitting vehicle buyer. The decisions by both Tamil Nadu and Maharashtra are obviously smart tricks to compensate for the likely losses post the abolition of state-specific levies such as octroi and local body tax (LBT).

This is no surprise. BMC used to rake in Rs 7,000-Rs 8,000 crore a year through octroi collection alone. According to certain reports, the annual loss on account of octroi and LBT on vehicles is estimated at Rs 700 crore under GST regime. Tamil Nadu too is hedging against potential revenue losses by tapping the milch cow for any government, entertainment industry. Worse, there are indications that other states like Maharashtra and Gujarat too may follow suit and levy entertainment tax above GST. What these states are effectively doing is killing the very idea of an already imperfect GST.

The point here is such distortions are further weakening an already flawed GST structure. With eight different rates (0, 5, 12, 18, 28, cess, 0.25, 3 percent) and exemptions on key items such as petroleum products and alcohol (two of the highest revenue winning items which the didn’t want to share with the Centre), the current GST is already a flawed structure and far from the ‘one nation, one tax’ concept. But, the hope is that eventually the fine-tuning will happen and the nation will move towards a two-rate structure (one for essential items and other for remaining) if not a flat rate structure such as Singapore. But, what is happening now is exactly the opposite of it.

Now, with individual states adding additional tax on the agreed rates, the GST is facing threat on two counts — the idea of having a single rate across the country for a specific product/service category and having a single, transparent rate without state-specific interventions. In other words, letting states have their own say upon agreed rates, the Centre is giving a silent burial to the idea of a 'one nation, one tax' dream. It shouldn’t allow that at any cost.

The Modi government can take on the states deviating from the originally agreed GST structure by pointing out the compensation clause in the GST framework and the agreements reached under the GST Council. Under the former, the Central government will compensate the states for any possible losses on account of the GST roll-out in the initial five years. In this backdrop, why do the states need to distort the GST structure by levying additional taxes? The Modi government should take up the issue with Maharashtra and Tamil Nadu urgently before other states follow suit.

GST was never a 'one nation, one rate' tax for us; both the states are only putting the final nail in the coffin.