Impact of Tariffs on India's Tax Revenue
The discourse on tariffs has gained momentum, with India being dubbed as a "tariff king." The focus here is to assess the impact of tariffs on India's exchequer and tax revenue, amidst the backdrop of additional tariffs imposed by the United States.
Historical Context and GST Implementation
- Prior to July 2017, customs duty provided a comprehensive view of the tax revenue on imports.
- Post-GST launch, the tax structure changed, integrating various duties into the GST framework with Central GST, State GST, and Integrated GST (IGST).
- IGST is levied on interstate transactions and imports, with revenues shared between the Centre and states.
Distribution of Revenue and State-Central Dynamics
- The Centre shares 41-42% of customs duty collections with states, while IGST is shared at a higher rate.
- Approximately half of the IGST on imports is shared with states, aligning with the Finance Commission's formula.
- States benefit more from the growing IGST collections, causing potential fiscal challenges for the Centre.
Potential Strategic Shifts
- With the Finance Commission recommending higher central tax transfers to states, the Centre increased reliance on cesses and surcharges to retain more revenue.
- There is speculation on whether the Centre might limit states' share in import revenue similarly.