GST Reform Proposal: Opposition States Demand Compensation For Revenue Loss

Opposition-ruled states on Friday asserted that the centre’s proposal for GST reform could result in a revenue loss of about Rs 1.5 crore to Rs 2 lakh crore and demanded compensation for the losses incurred by them. Finance Ministers of eight states decided to present their proposal to the GST Council at the next meeting on September 3 and 4. 

These states include Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal. The opposition-ruled states have demanded for balancing rate rationalisation and revenue neutrality, suggesting levying an additional duty on sin and luxury goods in addition to the proposed 40 per cent rate to maintain the current tax incidence.

They have asked for the proceeds to be distributed among the states. "The 20 per cent GST revenue loss will seriously destabilise the fiscal structure of state governments across the country," Karnataka Finance Minister Byre Gowda said, adding that states should be compensated for 5 years till the revenues stabilise, PTI reported. 

He cited the example of when GST was implemented where the revenue-neutral rate (RNR) was 14.4 per cent. Following the subsequent tax rate rationalisation, the net rate of taxation decreased to 11 per cent.

The current proposal will bring down the rate of taxation to 10 per cent. "States' revenue interest should be protected. If there is a serious loss to state government revenues, people will be impacted, development work will be impacted and insufficient revenue will hurt state autonomy as well," Byre Gowda said.

The eight states demanded that the base year for calculating revenue protection be fixed as 2024-25.

As per the Centre's proposal, goods and services will be classified as merit and standard and taxed at 5 and 18 per cent. A 40 per cent slab has been proposed for select few items such as sin goods and ultra-luxury items.

With PTI unputs