GST 2.0 Reforms: PM's big Diwali gift to cost states 15-20% in revenue? Opposition-led state ministers gather

Several Opposition-ruled states are discussing potential revenue losses on account of the central government's proposed GST reforms, announced after Prime Minister Narendra Modi promised a "big Diwali gift" in the form of "substantial" indirect tax cuts later this year. The states' top officials are set to hold a press conference on GST rationalisation on Friday, according to sources.

State Finance Ministers from Karnataka, Tamil Nadu, Telangana, Himachal Pradesh, Kerala, Jharkhand, West Bengal, Punjab and Himachal Pradesh are present in the meeting, said the sources.

Opposition-ruled states have demanded that along with rate rationalisation, an additional duty be imposed for the next five years, until revenue collection stabilises, according to Jharkhand Finance Minister Radha Krishna Kishore.

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Top officials engaged in meetings to discuss the imapct of the Centre's GST reforms, with the states preparing their strategies ahead of the next GST Council meeting, scheduled to take place on September 3 and 4.

Ministers from eight other states met on GST rationalisation on Friday, Karnataka Revenue Minister Krishan Byregowda confirmed. "All of us want rate rationalisation, but at the same time, revenue must also be maintained... This too needs attention," he said.

GST rationalisation benefit should reach the common man: Karnataka minister

Byre Gowda also said that the benefit of the GST 2.0 rate rationalisation exercise should reach the common man.

"Every rate cut will impact the revenue of states... Until now, the central government has not disclosed the estimated loss from rate rationalisation," he said, mentioning estimated losses of Rs 80,000 crore-Rs 2 lakh crore, citing data from various agencies.

GST 2.0 Rate Cut | PM's big Diwali gift to cost states 15-20% revenue

All states will face revenue losses of 15-20 per cent, as they depend on GST for about half of their revenue, said the Karnataka minister, stating that

With the rate rationalisation exercise, the revenue-neutral rate will fall to 10 per cent, from the current 11 per cent, from a pre-GST level of 14.4 per cent, he remarked.

States should continue to get compensation through the compensation cess for the next five years, so that the 14 per cent revenue-neutral rate can be maintained, he said

'Pre-GST system was more settled, no stabilisation in sight even today'

The state minister also said that GST has not yet stabilised, after eight years of its existence. "If you look at the pre-GST era, the system was more settled," he said.

"Despite all this, we are in favour of rate rationalisation. For state autonomy, state finances must remain strong. But if states suffer losses, the common man will eventually bear the burden," he warned.

Compensation cess as additional levy to balance GST losses?

The Karnataka minister also suggested an additional levy within GST in the form of a compensation cess. "This way, GST rates themselves won’t have to be raised, and states will continue to receive revenue. This additional levy can be imposed on sin goods," he said.

GST Rate Rationalisation | 'We are firm on our stance,' says Jharkhand minister

The Jharkhand Finance Minister said that Opposition-led states stand united in their position on the GST 2.0 reforms.

"On rate rationalisation, if the revenue impact is not compensated, we will not act like a rubber stamp," he said.

BJP-ruled states want the same, but can't speak openly, claims Kerala Finance Minister

"The issues we raised are not just of eight opposition states... BJP-ruled states also want the same, but they cannot speak openly," said Kerala Finance Minister KN Balagopal.

Stating that his state's revenue stood at Rs 32,000 crore last year, Balagopal said that this revenue would have been Rs 54,000 crore had sales tax been in place.

"We have suffered a loss of Rs 22,000 crore," he explained.

GST rate rationalisation should reach common man: Himachal Pradesh minister

The benefit of rate rationalisation should reach the common man and a mechanism must be developed to ensure this, said Rajesh Dharmani, minister of town and country planning, housing, technical education, vocational and industrial training in the Himachal Pradesh government.

Stating that while GST rate rationalisation should be implemented, he said that it must be ensured that its benefit reaches the people and not just a few companies.

"There should be a mechanism to curb profiteering," he said.

Financial situation of all states has deteriorated despite 8 years of GST: Punjab minister

Punjab Finance Minister Harpal Singh Cheema said that the financial situation of all states has deteriorated despite eight years of the indirect tax regime.

There is some flaw in the GST system that prevents states from improving their finances, he claimed.

PM Modi's big Diwali gift announcement on Independence Day

Delivering his record 103-minutes long Independence Day speech from the ramparts of Red Fort in the national capital, PM Modi announced a major GST relief before Diwali this year, promising "substantial" GST cuts on everyday items.

"Next-generation GST reforms will be unveiled on Diwali, reducing taxes on essential goods and providing relief to MSMEs, local vendors, and consumers," read an official statement released on the same day.

Earlier, Finance Minister Nirmala Sitharaman had stated that a simplified system would benefit the common man, farmers, the middle class, and small businesses, while making GST more transparent and growth-oriented.

The Centre proposed major reforms to simplify the GST rate structure by reducing the number of tax slabs and lowering the rates on most goods. Its key proposals include reducing the four-tier GST structure (5 per cent, 12 per cent, 18 per cent and 28 per cent) to a simplified, two-rate system (5 per cent and 18 per cent), doing away with the 12 per cent and 28 per cent rates.

The government has said that an estimated 90 per cent goods currently under the 28 per cent slab will be moved to 18 per cent, proposing a new 40 per cent rate for select sin items such as tobacco products.