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Ministers from eight opposition-ruled states — Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal — met over breakfast today ahead of the crucial Goods and Services Tax (GST) Council meeting to formulate a strategy for discussing the revenue loss arising out of the rate rationalisation proposal. States expressed support for the rate rationalisation proposal, but flagged concerns about revenue loss, stating that they will not approve the proposal in the Council’s meeting till a compensation mechanism for potential revenue loss is spelled out. The Centre’s GST rate rationalisation proposal found complete support from the National Democratic Alliance’s (NDA’s) key ally Andhra Pradesh, with the state’s Finance Minister Payyavula Keshav saying that he supports the proposal as an alliance partner.
Jharkhand’s Finance Minister Radha Krishana Kishore said they discussed the statewise revenue loss figures and a compensation mechanism for revenue loss is required, adding that his state is anticipated to lose Rs 2,000 crore annually on account of the GST rate rationalisation proposal. He said he expects the Centre to take on board their revenue loss concerns and the proposal won’t go through without assurance on compensation.
“Loss hoga state ko, woh compensation central government de toh phir unko agenda ko approve karenge otherwise nahi karenge (States will face revenue loss and central government needs to compensate for revenue loss. And if they assure compensation, we will approve the proposal, otherwise not),” he said.
When asked if it would require voting, Kishore said he doesn’t think that it’ll reach the stage of voting as being a “federal country and parliamentary democracy”, it is Centre’s obligation to give compensation.
Himachal Pradesh’s Minister for Technical Education Rajesh Dharmani said they have discussed states’ revenue loss, adding that they will see Centre’s strategy and next course of action in the meeting. “Let’s see what happens in the meeting. Wait and watch,” he said.
The two-day 56th meeting of the GST Council begins today wherein Union Finance Minister Nirmala Sitharaman along with ministers from 31 states and union territories will hold a threadbare discussion on the next-generation reforms submitted by the Centre to the Group of Ministers under GST.
The Opposition-ruled states had met on Friday also where they explicitly and unambiguously supported the Centre’s GST rate rationalisation proposal, but were concerned about revenue loss. In a joint statement, the states projected revenue loss of between Rs 85,000 crore and Rs 2 lakh crore a year and sought “protection of revenue interest and fiscal stability in a federal structure”. They had said states should be compensated for revenue loss – anything lower than 14 per cent revenue growth – for a minimum five years.
States were also worried if benefits of rate rationalisation will actually reach the common people or lead to “windfall profits” for just a few companies.
In his Independence Day address, Prime Minister Narendra Modi had said the GST reforms, to be implemented before Diwali, would lower the tax burden for the common man, small entrepreneurs and MSMEs. The Centre’s proposal on GST reforms proposes replacing multiple slabs – 5 per cent, 12 per cent, 18 per cent and 28 per cent – with a broad two-slab structure – 5 per cent and 18 per cent – in addition to a 40 per cent special rate for sin and demerit goods.
