Northeastern States have been biggest beneficiaries of GST: Nirmala Sitharaman

North Eastern states benefited from the implementation of the Goods and Services Tax (GST) through a significant increase in revenue collections following the tax reform in 2017, said Finance Minister Nirmala Sitharaman at an event on Saturday.

Sitharaman speaking at the ‘Conclave 2023’ in the capital stated that the northeast has benefited from the government’s emphasis on infrastructure creation and connectivity improvement. The region has also benefited from increased tax transfers to states, as well as funds provided to them for asset creation, according to the minister.

Finance Minister further stated that tax collections have improved not only in general, but also in areas where manufacturing activity is low. That is not to say that manufacturing states collect less GST, as the minister clarified.

States with strong industrial production bases are also big consumers, benefiting from taxes on goods produced and consumed in the state, as well as taxes on goods imported from other states for local consumption.

Unlike in the pre-GST regime, GST is a destination-based tax on consumption, with importing states receiving the tax on inter-state trade. This is a significant benefit under GST for states with a small manufacturing base because they receive Integrated GST (IGST) receipts on imports.

Sitharaman explained that, despite the fact that the northeast has fewer manufacturing activities, both GST collection and tax devolution from the central government have resulted in good revenue generation for the northeastern states. “Northeastern states have benefited the most from GST,” the minister said.

Sitharaman also stated that since the implementation of GST, the states in this region have seen a compound annual GST revenue growth rate of 27.5%. The annual growth rate prior to GST was 14.8%. According to the minister, this is a boon for states because it strengthens their hand in implementing programmes.

Between 2014 and 2023, tax devolution to this region quadrupled, according to Sitharaman. It is now at Rs.5.06 trillion. The minister also stated that since 2020-21, northeastern states have received Rs.15,440 crore in interest-free 50-year loans for capital asset creation.