States must explore levy of passenger, goods tax to raise revenue post GST cuts, Pg 13.

Key Highlights:

• States are advised to explore revenue generation through Passenger and Goods Tax (PGT) due to potential GST revenue losses.
• GST rate reductions, while potentially progressive, may face challenges in passing benefits to consumers.
• States like Bihar and Gujarat, heavily reliant on GST, may face fiscal risks due to tax rate changes.
• The expert suggests a broad-based, low-rate (BBLR) taxation system instead of exemptions to increase the tax base.

Detailed Insights:

• GST rate cuts may lead to immediate revenue impacts while benefits are realized over time, influenced by demand elasticity and formalization.
• States should consider PGT as a service tax addressing negative externalities of commercial vehicle movement like pollution and congestion.
• The shift towards electric vehicles necessitates exploring alternative tax mechanisms like Vehicle Miles Travelled (VMT) tax due to reduced fossil fuel tax revenue.
• States with alcohol prohibition should re-evaluate policies considering revenue losses and potential gains for neighboring states.

Key Concepts Involved:

• Goods and Services Tax (GST): An indirect tax levied on the supply of goods and services.
• Passenger and Goods Tax (PGT): A tax on the movement of passengers and goods, addressing externalities like pollution.
• Broad-Based, Low-Rate (BBLR): A taxation principle advocating a wide tax base with lower tax rates.