GST and Entry Taxes

One of the state level levies proposed to be subsumed under the Goods and Services Tax umbrella is the Entry Tax not in lieu of Octroi. Entry tax, not in lieu of Octroi, is levied by the State governments on goods entering into their respective territories for final consumption. It is levied under the powers available under Entry 52 of the State List. Entry tax is modeled as a compensatory tax. Compensatory Taxes are proportional to a measurable advantage conferred by the Government. Entry Tax, in its preamble, was stated as a measure for collection of tax to provide facilities to traders and improve infrastructure. Supreme Court has validated that Entry Taxes are in the nature of a Compensatory Tax as it confirms with the yardsticks imposed and has adjudged them to be an exception to Article 301 of the Constitution of India. Article 301, by providing that subject to provisions of Part-XIII, trade, commerce and intercourse throughout the territory of India shall be free, upholds the idea of India being a single economic unit with no restrictions for movement of goods, property and services. Citing this Article, it is often argued that the character of Entry Tax is, effectively, not in congruence with the principle prescribed under article 301 of the Constitution and hence can only be accommodated as an exception.

On one hand, Entry taxes, not in lieu of Octroi,  impose an unnecessary burden on the movement of goods, absorb administrative resources and could defeat the model of GST if not subsumed under it.  Entry Taxes are to be abolished by organizing adequate compensation for revenue losses suffered by states earning significant revenues for this source. On the other hand, Entry Tax, which is in the nature of Octroi, cannot be disturbed. It is imposed by municipalities and urban local bodies to meet their revenue requirements and the proposed Goods and Services Tax regime does not accommodate a compensation system for subsuming taxes levied by local bodies.