GST Unlocks Strong Revenue Potential of India’s North Eastern States

Abstract

The north eastern (NE) states have largely benefitted from the introduction of the goods and services tax (GST) in the country. Arunachal Pradesh witnessed the highest increase in tax collections in the country, while the performance of Manipur, Mizoram and Nagaland was well above the national average. This can be attributed to three distinct reasons. First, with the shift from origin-based levy to destination-based taxation in inter-state sales of goods and services, these states collected much more revenues as they are predominantly consuming states. Second, GST being a value added tax has an inbuilt mechanism for higher tax compliance. All the NE states have witnessed higher revenues from SGST, a component of GST representing taxes collected within the state. Third, the central and the state governments have also encouraged tax payments indirectly by disseminating information on the new tax system. With economic growth picking up in the NE states, GST is likely to register a strong revenue performance in the future and help in much-needed resource mobilisation for the development of the region.