Why Jayalalithaa is not happy with the GST?

Tamil Nadu Chief Minister J Jayalalithaa is not particularly happy with the Goods and Services Tax (GST), especially because it will take a direct hit on the funds for welfare schemes from free laptops to to low-priced food canteens. The proposed GST will take out a significant chunk of the Own Tax Revenue (OTR) for the manufacturing state.

This will lead to an increased borrowing by Tamil Nadu and hit the fiscal-deficit ceiling to fund a ballooning budget for the above-mentioned welfare schemes.

Economic experts say, "If Tamil Nadu takes up GST, they may have to either borrow money or give up some of the schemes. While it will be tough to say which route the state will take, it is for sure the GST in its current form will significantly add to the state's revenue deficit."

[Read: Salient features of draft GST Bill]

Jarring figures revealed by a study conducted by economists in the state commercial taxes department imply that Tamil Nadu stands to lose Rs 9,270 crore a year upon implementation of the GST.

The government gets 70% of state's OTR through sales tax and state VAT, which accounted for Rs 95,531 crore in the interim budget presented in February. In such a situation, Tamil Nadu will lose revenue as the GST law shifts points of tax levy from origin to where the good or service is utilised. The scene is even clearer when we say that the state is a hub of clusters of textile, automotive, leather and pharmaceutical factories. But, it consumes less than it manufactures.

"Due to the new GST procedure, more dealers are going to be ex empted from taxation, the central sales tax will be slowly phased out and so will Tamil Nadu's inherent nature of being a producing state," said an expert.

The passing of the GST Bill is a landmark move in the country, but Arun Jaitley rightly pointed that Tamil Nadu was the lone state that did not agree to it.

[Read: Rahul Gandhi needs to back GST; only cooperation can earn Congress respect now ]

Jayalalithaa's meeting with PM Narendra Modi dealt particularly with the issue where she discussed that the Bill will effect the state economy. She also urged the Centre to compensate for all its revenue loss, which account for Rs 2,000 crore.

[Read: GST model law suggests tax levy at first point of transaction ]