'1% tax by states over and above GST to hurt Make in India'

Government needs to reconsider levy of 1 percent additional tax by states over and above GST rate as it could make intra-state movement of goods expensive and hurt the 'Make in India' campaign, Chief Economic Advisor Arvind Subramanian said on Tuesday.

"Think of a good going from Gujarat to Tamil Nadu, crossing four states. The good would embody an additional tax of about 4-5 percent, because it is 1 percent every state.

That might make it easier to import into Tamil Nadu from Bangkok," Subramanian told reporters here.

In order to address concerns of the manufacturing states, the GST Constitution Amendment Bill has provided for an additional one percent tax for a period of two years.

As Goods and Services Tax (GST) is a destination-based levy, it would help the manufacturing states make good the loss of revenue.

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Arvind Subramanian

Chief Economic Adviser|GoI

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"It (1 percent additional tax) has the potential to undermine Make in India. That is why we need to look at this provision carefully. This period that we have gained, some of these issues need to be looked at again," Subramanian said.

The Constitution Amendment Bill to roll out GST has been referred to Rajya Sabha Select Committee which is expected to submit its report at the beginning of the next session of Parliament. Lok Sabha has already cleared the Bill.

The government plans to roll out GST from April 2016.

The irony of such an additional tax is that it would favour international trade over intra-national trade, because every time a good passes a border it had to be an extra non Vat-able tax.

GST, being touted as the most significant reform in indirect tax, will subsume various levies including excise, service tax, state VAT, entry tax, octroi and other state levies.