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Monday, August 8, 2016

GST could initially strain fiscal math

The Centre could feel fiscal pressure from the implementation of goods and services tax (GST) in the initial years, as it is required to compensate manufacturing states for the loss of CST, even though there is little hope of corresponding increase in its own revenue, say experts.

The Centre has agreed to fully compensate manufacturing states like Gujarat, Tamil Nadu and Karnataka for 1 per cent loss of central sales tax proceeds for the first five years after the implementation of GST.

However, finance ministry officials reveal that the government is yet to undertake the exercise to assess the impact of the planned switchover to the new indirect tax regime on the Center’s fiscal position. This is because an agreement is yet to be reached on the standard GST rate, which will be applicable to three-fourths of products and services.

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