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7
March 2017
The compensation norms for revenue
losses accruing from transition to the Goods and Services Tax (GST) system will
bring certainty to state budgeting, rating agency ICRA said on Tuesday.
"The draft compensation norms
for revenue losses related to the transition to the much-awaited GST will impart
an element of certainty to budgeting at the state level, given that the
transition may turn out to be temporarily disruptive, and that the pace of
growth of central transfers to state governments is forecast to halve in the
coming fiscal, ICRA said in a statement.
The states' own revenues, subsumed
into the GST, will grow by at least 14 per cent for the first five years after
the transition to the GST, reducing the extent of uncertainty for state budget
preparation, the statement said. The Total Investment & Insurance
Solutions
The 2017-2018 Union Budget has
forecast a reduction in the pace of growth of central transfers to state
governments to 9.8 per cent in the Budget Estimates (BE) from 18.7 per cent in
the revised estimates (RE) for 2016-2017, Jayanta Roy, Group Head - Corporate
Sector Rating, ICRA, said. The Total Investment & Insurance
Solutions
"The pace of growth of central
tax devolution is budgeted to decline to 10.9 per cent in FY2018 BE from 20.1
per cent in FY2017 RE, led by the slowdown in the year-on-year growth of the
excise duty (to 5 per cent from 34.5 per cent) and service tax collections (to
11.1 per cent from 17.1 per cent)," Roy said. The Total Investment
& Insurance Solutions
"Any reduction in excise duty
on fuels over the course of the year, intended to absorb a further rise in
crude oil prices, will pose a downside risk to the state governments' share in
the central tax revenue," Roy added. The Total Investment & Insurance
Solutions
While some manufacturing-intensive
states have expressed concerns regarding revenue losses on account of the shift
from Central Sales Tax (CST) to the Integrated GST (IGST), ICRA expects this to
be partly offset by higher revenues related to services accruing to nearly all
the states, it said. The Total Investment & Insurance
Solutions
The GST on services accruing to the
states on an aggregate basis will be twice as high as the share of service tax
devolved to the state governments on every Rs 100 of taxable services in the
current regime, as per ICRA estimates. The Total Investment
& Insurance Solutions
State governments' revenue receipts
comprise their own tax and non-tax revenue, as well as central tax devolution
and grants from the Centre.
Central transfers, that is central
tax devolution and grants from the Centre, account for around two fifth of the
state governments' revenue receipts in aggregate.The Total Investment
& Insurance Solutions
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