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Informist, Thursday, Sept. 25, 2025

 

HYDERABAD – Telangana Deputy Chief Minister Bhatti Vikramarka Mallu, who also holds the finance portfolio, Thursday called for a review of the tax devolution framework for fair sharing of taxes between the Centre and the states, and further recalibration of the goods and services tax regime so that it meets the aspirations of both the Centre and the states. 

 

At an event in New Delhi, Mallu expressed concerns over the tax devolution formula as recommended by the 15th Finance Commission. "Several states have voiced concerns about the mismatch between the contributions and receipts," Mallu's office said in a statement, quoting him. The minister said that Telangana receives 42 paise for every rupee it contributes to the Central pool, while Tamil Nadu receives 26 paise, and Karnataka receives 16 paise. In contrast, Uttar Pradesh receives as high as INR 2.03.

 

The 15th Finance Commission has recommended a 41% of the divisible pool be devolved to states. The panel has also recommended determining each state's share in the divisible pool of taxes based on a weighted sum of population, area, forest cover, fiscal effort, income distance, and demographic performance. This has been a point of contention between the Centre and states, especially those led by the Opposition, who argue that they have not received their due share. Additionally, the use of population as a metric to determine devolution has irked many southern states, as they have done a better job of controlling population growth.

 

"Each state has its own priorities and requirements. A uniform design cannot address the diverse needs of regions across the country," Mallu said. "A more balanced and proportionate approach will strengthen both the states and the national economy."

 

Mallu also voiced his concern over the revenue shortfall for states in light of the latest cuts in the GST rates. While there was broad consensus on rate rationalisation at the GST Council meeting, the critical issue of compensating states facing revenue shortfalls remains unresolved, Mallu said. 

 

The GST Council agreed on September 3 to overhaul the indirect tax regime by consolidating the four-slab GST structure of 5%, 12%, 18%, and 28% into a two-slab structure of 5% and 18%. The council also introduced a new GST rate of 40%, to be imposed on sin and luxury goods. The new GST rates took effect on Monday.

 

The central government has estimated a net revenue impact of around INR 480 billion due to the rate rationalisation, but Mallu said that some independent organisations have placed the figure significantly higher. "Achieving clarity and convergence on these estimates would help strengthen trust and cooperation between the Centre and states," he said. Following the GST Council meeting, Telangana projected a revenue loss of INR 50 billion for the state due to the implementation of the new regime.

 

Mallu said the Union government may need to revisit the GST design to ensure that its objectives are fully realised. "The GST framework requires careful recalibration to meet the aspirations of both the Centre and the states," he said.   End

 

Reported by Narayana Krishna 

Edited by Saji George Titus

 

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