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Informist, Wednesday, Sept. 3, 2025

 

NEW DELHI – Ahead of the 56th meeting of the GST Council Wednesday, Opposition-ruled states met earlier in the day to plan their strategy. The Opposition states have agreed to the overall intent to lower goods and services tax burden and to support the Centre's plan but will seek a mechanism to insulate states from the potential revenue loss that may result from the rate rejig mechanism. "It is a good initiative to lower tax burden, we agree to it, but Centre should work out a way to compensate states for the revenue shortfall," Jharkhand Finance Minister Rameshwar Oraon said. "All states will lose revenue," he told mediapersons. 

 

This is the second meeting of the Opposition-ruled states ahead of the GST Council meeting. The GST Council meeting assumes significance after Prime Minister Narendra Modi's announcement in his Independence Day speech about the government's "Diwali Gift" in the form of lower GST burden. The Centre has initiated an overhaul of the indirect tax structure which will include rationalisation of the number of GST rate slabs from four to two. 

 

The Centre has proposed to bring 99% of items under the 12% tax slab to the 5% slab and almost 90% of items under the 28% tax slab to the 18% tax slab. Currently, 65% of the total GST revenue comes from items falling under the 18% tax slab and 11% revenue is collected from items under the 28% slab. Only 7% and 5% GST is collected from items under 5% and 12% tax slabs, respectively. The Group of Ministers on GST rate rationalisation has accepted the Centre's proposal to shift to a two-slab GST structure, Convernor of the panel and Bihar Deputy Chief Minister Samrat Choudhary had said after the ministerial panel's meet.

 

In the previous meeting, the states ruled by the Opposition parties had proposed a host of ways in which the Centre can compensate states, including garnering an additional levy over and above the proposed 40% rate on sin and luxury goods, which must be distributed among states to avoid any revenue shortfall. "There was a cess, the cess can be replaced by an additional levy so that additional levy can be used to compensate states," they said. "Compensation should be assured for a minimum of five years, beyond which it may be reviewed based on GST buoyancy," the states had said in their proposal to the GST Council. Protection should be granted at the rate of 14% per annum, it added. 

 

The states also said that the Centre should raise loans to compensate the balance revenue loss of states (both due to rate rationalisation and loss of compensation cess) and repay the same through extension of the compensation cess beyond 5 years, as per the past precedence.

 

The Opposition-ruled states said the Centre has not provided any estimate for the potential revenue loss arising from the GST rate rationalisation. The meeting was attended by ministers from seven Opposition-ruled states--Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal. The GST Council had last met in Jaisalmer in December.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Vandana Hingorani

 

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