Don't pin hopes on service sector once GST is in force, says expert

THIRUVANANTHAPURAM: Though it is widely perceived that it will be the service sector of the state that will generate more revenue once Goods and Services Tax (GST) is in force, this could be a wild dream to chase, according to a paper presented by associate professor of Gulati Institute of Finance and Taxation (GIFT), Jose Sebastian.

Presenting his paper at the policy dialogue series on GST organized by the Institute for Sustainable Development and Governance here on Friday, Jose Sebastian said that a study undertaken by GIFT has shown that the state accounts for just 1.30% of central service tax collection in 2012-13. This is because the state's service sector is dominated by small-time businessmen, majority of whom falls below the proposed threshold limit of Rs 10 lakh.

"What matters is not the size of the service sector per se, but the presence of taxable services and the size of service providers," he said.


The state's contribution is abysmal as compared to states like Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Gujarat and West Bengal that account for 62.85% of service tax collections.

According to the paper the benefit of GST for the state would come mostly from the e-commerce sector.

The paper also said that it would be unrealistic to expect GST to solve the fiscal problems of the state. Even if it is assumed that GST will bring Rs 5,000 crore of additional revenue, it is not going to have much of an impact on the fiscal front when the state is going to have a revenue deficit of Rs 18,000 crore in the financial year 2016-17.