New inspector raj threatens to cut short India's GST party, states may play spoilsport too

NEW DELHI: Auto companies cut prices after the rollout of the goods and services tax (GST) on July 1, but Maharashtra raised the onetime registration levy for new private vehicles by two percentage points. Meanwhile, cinema theatres across Tamil Nadu stopped screenings for four days to protest against a 30 per cent local tax levied over and above 28 per cent GST. The strike was called off on Friday.

Elsewhere across India, transport department officials have emerged as enforcers of a new inspector raj on the roads after sales tax checkposts disappeared, undermining the beneficial, common-market effects of GST by imposing new barriers and levying penalties in the name of rules they have ignored for years.

More such levies and actions by state authorities could spoil the GST party, especially on the same goods or services that attract GST. Across the world, local levies continue after GST imposed but generally not on same transactions.


GST may have subsumed as many as 17 central and state taxes and 23 cesses but there are enough items outside its purview still that can serve to offset the gains of this momentous reform.

Entry taxes by municipal bodies, entertainment tax levied by local bodies, stamp duties, products such as alcohol and fuels, and electricity cesses are still not covered by GST. “While few levies and taxes by local bodies, entertainment tax, stamp duties etc. are outside GST, we expected that states would not immediately resort to increasing these,” said Pratik Jain, leader, indirect tax, PwC. “It will impact consumer confidence at the time GST is just settling in.”

While some of these such as road tax and registration charges on vehicles can raise prices, the real damage will be from entry taxes imposed by municipal bodies.

The Municipal Corporation of Delhi, for instance, imposes entry tax on commercial vehicles.

Other municipalities could be similarly tempted to raise revenue through such means, impeding the smooth flow of traffic through their geographical boundaries.

Worryingly, Maharashtra raised the levy on new vehicles when the GST law promises to make good any loss on account of GST to the states. Now new vehicles in the state could cost more than they did pre-GST.

“States should let the benefits of GST reach consumers... They are equal if not greater partners in reform,” said a government official, adding that the Centre has already walked the extra mile to accommodate their concerns. States could be tempted to raise stamp duties, levy higher value-added tax (VAT) on fuel and alcohol and raise the electricity cess.

More municipal bodies could impose taxes on the entry of commercial vehicles, creating high-tax islands even as state boundaries blur.

Entertainment tax is another levy vulnerable to such action. “Ideally, we could have put everything in one basket, but India being a diverse country, it is something which was not possible,” said a senior government official, acknowledging the risk posed by this.

“Those taxes are out of GST. States have got full powers to levy something on that or alter the rates of those taxes. If they are using that power and they think people can tolerate this extra taxation, then we cannot prevent that,” said the official.

EY partner Bipin Sapra said: “Local levies in most international VAT jurisdictions are rarely on the same transaction on which VAT/GST is applicable. The very purpose of GST is lost if another non-creditable tax is levied on the same base.”