Goods and Services Tax Act 2016 and Its Implications on the Revenue Base of the U.T. of Puducherry

Abstract

The Goods and Services Tax Act, which was passed by Indian parliament and more than 50 percent of the state legislatures, is likely to be implemented from the financial year 2017-18. The GST will replace the existing indirect taxes levied by the Central and State governments. The proposed GST is expected to affect the inter-state relations and central-state relations as well. Puducherry, a tiny Union Territory, which merged with India in 1954, implemented tax systems such as turnover tax, general sales tax, uniform rate of tax, and value added tax respectively. The UT’s business was flourishing due to lesser tax on goods, compared to its neighboring States. As GST aims to transform India into a uniform market by breaking the current fiscal barrier between states and UTs, Puducherry is likely to lose its revenue base leading to adding fire to the existing financial crisis faced by the UT. Therefore, this paper suggests to exempt Puducherry from GST, as in the case of Northeastern States.