Sudhir Mungantiwar, Finance Minister, Maharashtra, has to ensure that the state must be in a position to be self-sufficient in tax collection, post GST implementation. In an exclusive interview, he talks about how Maharashtra is gearing up for the new tax regime.
As finance minister, can you tell us about the expected revenue loss after the implementation of GST in Maharashtra?
To be honest, at present, it is highly impossible to share any revenue losses and it is not correct on our part to share these numbers without any ground study. Now, you have to consider a couple of factors before we come out with the figures. First, the revenue losses will be finalised only after the suggestions by the GST Council and will be finally decided by the Government of India in terms of tax cap. Second, elements such as service tax and Maharashtra´s position on octroi and local body tax, are required to be considered while we give out revenue losses of the state.
Our main point of discussion with the government is: how much loss will be borne by the Government of India (in case of Maharashtra), once GST is implemented. The abolition of local taxes won´t affect Maharashtra, which is both a manufacturing and consuming state. Octroi is only levied in Mumbai, but that doesn´t mean other districts, where octroi was abolished in the early 1990s, are not doing well any more. In this regard, we have already commenced an internal study, which is likely to be ready by December end.
What was the outcome of the first GST Council meeting? What was the consensus?
Obviously, the consensus was more on a certain tax cap, which I would not like to share. However, it all depends on the GST Council and at the end, the Government of India. Another point discussed in the meeting was about threshold limit for revenue exemption. It was decided to keep the revenue exemption limit at Rs.20 lakh for all states with the exception of northeastern and hill states, where the limit will be `10 lakh.
Meanwhile, as far as Maharashtra is concerned, according to our preliminary study, we will emerge as the biggest beneficiary. There are a couple of reasons behind it. First, the share of service tax from Maharashtra is as high as 19.68 per cent. That clearly suggests that we are the major contributor. And hence, we are expecting 50 per cent of share in terms of grants from the Central government, purely on the basis of our contribution.
Second, the state is known for its manufacturing contribution to the country. Hence, we think that there will be no major impact on manufacturing post GST implementation. In addition, since the state is now shifting to become a consumer-driven state, the implementation of GST will certainly benefit the state.
However, the exact numbers will be ready in the next two months, which will put us in a better position to manage and allocate funds for various development projects across the state.
Does that mean the state is least bothered about its revenue losses?
We are relaxed because the Centre is taking care of our losses. It´s not just Maharashtra, but other states also share similar sentiments. But that does not mean we are least bothered about our revenue losses. We are more worried about the time when the compensation stops, and we want to be self-sufficient very soon. In the meantime, since we have octroi and LBT, (and as Maharashtra is the only state in the country to have the former), we are seeking some favours from the GST Council, to consider our losses in these two tax forms.
We have also suggested to the GST Council to release aid in lieu of our revenue losses in 12 months.
I must assure you that the Brihanmumbai Municipal Corporation will not lose a single rupee with the abolishment of octroi.
Do we see any impact on the infrastructure sector with the implementation of GST?
I don´t think there will be any major impact on the infrastructure sector post GST regime. You should understand that GST has been implemented in 153 countries, and at the end, it has helped those countries on various fronts, whether it be infrastructure or manufacturing. In fact, because of GST, ´scattered India´ (in terms of taxes) will be become ´one India´ with the abolishing of various taxes by state governments. This will attract more foreign direct investment in the state.
As I said, Maharashtra will be a clear beneficiary of GST. This is mainly because, we have lost many businesses on account of the present tax regime, and GST will hold the entire country together, arresting the unwanted competition within the states. That said, earlier, raising funds for development projects was a huge challenge. But post GST, we are sure that this impediment will be overcome. GST will bring a level playing field for all states; however, now it will depend on the ability of a state, how it will garner revenue post GST impact. Now, the competition within the state will be based on merit and not based on tax reforms.
What about the IT preparedness for GST? It must be a huge task for the state....
I think other states may get jealous about our IT preparedness. We are, and will remain ahead in terms of IT implementation for GST. Here, I would like to make a proud announcement that Maharashtra is the only state in India to start a skill institute for GST in Maharashtra. We have asked our information and technology department to work on a war footing as we expect more than 1 million documents to be incorporated in the GST database. However, we have asked for a one-month extension for IT preparedness.
´GST is being tailor-made to boost infrastructure´
Union Minister of State for Finance, Arjun Ram Meghwal, speaks exclusively to Infrastructure Today on the preparations for the rollout of the new tax regime.
India plans to shrug off its British legacy of accounting and shift to the Gregorian calendar from the 2018-2019 fiscal year. Confirming this, Union Minister of State for Finance, Arjun Ram Meghwal says, ¨We would have made this migration in the next fiscal itself (2017-2018) itself, however, the emphasis of the Union government is to introduce the Goods and Services Tax (GST) regime by April 1, 2017. So the plan to shift to the January to December financial year has been deferred. But we will move to the calendar financial year as existing in most of the world - including France and Germany - by the fiscal after next.¨
¨The budget of India, including that of the Railways, will be presented by Arun Jaitley well before February 28, 2017, in a change from convention existing for the last few years. This is in order to ensure that the GST regime can come into force by April 1, 2017,¨ says the minister.
Meghwal notes, ¨By 2018-2019, our Union budget would be synchronised to a January to December fiscal year. This is being done in the wake of representations by exporters in India, who lament their need to maintain two sets of ledger books of accounts to reconcile with their clients in France and Germany and much of the world that follows the January to December financial cycle.¨
Meghwal emphasises the need to incorporate modern systems into the Indian economy as the need of the hour, instead of continuing with the old and distinct legacy left behind by the British rulers in India.
¨When Maruti, with its Japanese collaborators, launched in India, the foreign carmaker had to reconcile its cars to the right hand drive model specifically to suit Indian road etiquette where, like in the United Kingdom, cars ply on the left side of the road unlike in USA and the rest of the world. This is similar to the British accounting style where the fiscal year begins after the first quarter of the calendar year has ended.
We need to migrate to more rational accounting practices,¨ he adds. Meghwal tells Infrastructure Today, ¨The GST model will turn out to be the most complementary tax model to suit infrastructure development. The GST is being tailor-made for giving an impetus to infrastructure building in India.¨
- Rahul Kamat