Telangana, Andhra Pradesh worry about GST effect on funds

Hyderabad: The Revenue Neutral Rate (RNR), which will be prescribed by the GST Council after passage of the GST Bill, has become a cause of major concern for the two Telugu states.

Though the Centre is yet to prescribe RNR, there are indications that it will be 18 per cent. Finance department officials meanwhile say that an RNR below 25 per cent would result in severe financial losses for both Telangana and Andhra Pradesh.

Both states heavily depend on taxes earned through petroleum pro-ducts, alcohol and toba-cco products, which have tax rates ranging from 32 per cent to 175 per cent at present. If they are taxed at 18 per cent in the GST regime, the states will suffer huge losses. Though the Centre has agreed to remove alcohol and tobacco from the purview of GST, there is no clarity on petroleum products so far.

“Petroleum products and alcohol are the major revenue earners for both states. Nearly 60 per cent of the tax revenue is contributed by these two sectors. But as per GST, the tax rate, which is referred to as RNR, is being proposed at 18 per cent. At present, the tax rates on these products range from 32 per cent to 175 per cent. Though there are indications of the Centre exempting petroleum products from the GST ambit, there is no clarity on alcohol and tobacco products so far. However, a clear picture will emerge only after the GST Council is formed and it prescribes the percentage of RNR," said a senior official of Commercial Taxes and Excise department. Officials said that it would take at least another five to six months to determ-ine RNR.

Even after the Bill is passed in the Rajya Sabha to make GST a law, it cannot be implemented without creating the GST Council. “At least 15 of India's 29 state legislatures have to pass it too. Only then will the GST Council be created. The council, which will comprise Union ministers and representatives of all state governments, will then decide the RNR. While 2/3rd of voting power of the council will be with the states, 1/3rd will be with the Centre," he added.

The GST is a consumption tax. States that manufacture goods therefore will lose revenue as the taxes they impose currently will be removed. The Centre has agreed to compensate them for five years.

“One benefit for TS and AP in GST would be that both are more consuming states than manufacturing states. Manufacturing states will lose more revenue than consuming states,” the official added.