The eight opposition-ruled states in the country have extended their support to the GST rejig announced by Prime Minister Narendra Modi earlier this month, but have demanded a mechanism that ensure the benefits from the rate-cuts are passed on customers.
Senior Congress leader Jairam Ramesh said on Saturday that the states – including Karnataka, Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal – have asked for compensation to all states for a period of five years, with 2024-25 as the base year.
"Eight opposition-ruled states – Karnataka, Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal – have extended their support to the reduction in the number of GST rate slabs and a reduction in the rates themselves for items of mass consumption," the Congress general secretary in-charge of communications said on X.
The high-powered GST Council meeting, which has been slated for September 3-4, will be chaired by Finance Minister Nirmala Sitharaman, and will discuss moving to a two-slab taxation system comprising 5 per cent and 18 per cent tax slabs instead of the current 5 per cent, 12 per cent, 18 per cent, and 28 per cent slabs. The two-day meeting will be held in New Delhi.
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The council, comprising finance ministers of all states and Union Territories, besides that of the Centre, will also deliberate on the recommendations made by the three GoMs on rate rationalisation, compensation cess and health and life insurance.
The finance minister from the eight opposition-led states had announced earlier that they would present their proposal to the GST Council at the meeting.
On Friday, the states had said the Centre's proposal for the GST rate rejig could result in a revenue loss of about ₹1.5 crore to ₹2 lakh crore and demanded compensation for the losses incurred by them. They also suggested levying an additional duty on sin and luxury goods in addition to the proposed 40 per cent rate to maintain the current tax incidence, the proceeds from which, they said, should be distributed among states.
"Should there be a deficit even after the imposition of the proposed additional levy (on sin and luxury goods), the union government should raise loans secured against the future receipts of the additional levy," said the proposal by the states.
Ramesh said the Centre gets close to 17-18 per cent of its revenue from various cesses that are not shared with the states.
Stressing on the fact that the states’ demands are perfectly legitimate and bolstered by recent papers published by the Union Finance Ministry's own National Institute of Public Finance and Policy (NIPFP), the Congress leader said they hoped the upcoming GST Council meeting would not merely be a “headline-grabbing exercise”.
"It hopes that the GST Council meeting scheduled for next week will not be merely a headline-grabbing exercise so typical of the (Narendra) Modi government, but will also advance the cause of genuine cooperative federalism in letter and spirit," he added.
Earlier this month, the Congress had demanded an official discussion paper on GST 2.0 for a wider debate on it, and said the reform should be towards a "Good and Simple Tax" in letter, spirit, and compliance, and not the "Growth Suppressing Tax" it has become.
Meanwhile, Karnataka Finance Minister Krishna Byre Gowda said each state is expected to lose 15-20 per cent from its current Goods and Services Tax (GST) revenue.
"The 20 per cent GST revenue loss will seriously destabilise the fiscal structure of state governments across the country," Byre Gowda said, adding that current proposal by the Centre to reduce GST rates and prune slabs will bring down the net rate of taxation to 10 per cent.
“When GST was implemented, 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… 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," he said.
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