GST Cuts Spark Compensation Demand From Opposition-Ruled States

At a time when the Modi government is thinking of handing a bonanza to the Indian consumers and kickstarting the economy, the Opposition is already thinking of ways and means to create hurdles. At a meeting convened at Karnataka Bhavan in New Delhi, 8 eight Opposition ruled states resolved to demand protection of their revenue interests when the GST rationalisation exercise comes up before the GST Council at its 56th meeting on September 3-4. The biggest cut in GST is expected now, and apprehensions about revenue losses to states have surfaced. These states estimate a revenue loss to be around Rs 50,000 crore during this financial year and nearly Rs 1.5 lakh crore next financial year. While NDA-ruled states are backing the Centre’s strategy of cutting GST, the Opposition-ruled states do not want to grapple with potential revenue losses, especially at a time when Tamil Nadu, West Bengal and Kerala are heading for Assembly elections. Besides, the Congress has a political problem with GST cuts. That is because the GST cuts were part of PM Modi’s Independence Day speech when he promised GST cuts on items used by common people as a Diwali bonanza. The Opposition states are demanding a 5-year compensation for the rate cut, the sort of compensation that they received when GST was introduced in 2017.  Congress leader Jairam Ramesh demanded compensation to all states for a period of five years with 2024-25 as the base year, since their revenues are bound to be adversely impacted by the rate cuts. He also wanted additional levies on ‘sin’ and luxury goods over and above the proposed 40% should be fully transferred to states. Today the Centre gets close to 17-18% of its revenue from various cesses that are not shared with the states.