GST Cut: How Much Will States Lose?

Opposition-ruled states warn of steep annual losses; Centre assures higher consumption will offset revenue hit.

State chief ministers and finance ministers, especially those belonging to the INDIA bloc, have flagged the revenue loss that their governments are set to incur because of rationalisation in goods and services tax (GST) rates.

CMs and finance ministers of the Bharatiya Janata Party-led National Democratic Alliance have refrained from expressing their views on the subject publicly, but have shared their apprehensions on potential revenue loss with the Centre, sources told Business Standard.

Eight ministers in states run by parties other than the BJP met in Delhi on August 29, and again over breakfast before the GST Council meeting.

Jharkhand's Radha Krishna Kishore estimates a revenue loss of Rs 2,000 crore per year for his state.

Kerala Finance Minister K N Balagopal has said his state could face an annual loss of Rs 8,000 crore to Rs 10,000 crore.

Himachal Pradesh's Harshwardhan Chauhan's estimate is that the hill state could lose Rs 1,000 crore annually.

Amit Mitra, principal chief advisor to the West Bengal chief minister, told Business Standard: "The manner in which this reform has been pushed through raises questions on federalism."

Mitra, finance minister in West Bengal from 2011 to 2021, said: "At the GST Council meeting, 11 ministers wanted a discussion on revenue loss. But their voices were muffled."

"A loss to the states would undermine the fundamentals for people -- from health and education to women's empowerment, whereas the super-rich benefit from a reduction in effective taxation on luxury cars like BMW and Mercedes once the cess is removed," Mitra said.

Luxury cars were taxed at 50 per cent, including cess. Now, they will be taxed 40 per cent.

Mitra said "reform was done in haste to take credit before the festival season. A good number of inputs even for everyday items like soap and shampoo come under the 18 per cent slab even though the GST rate of the finished product is at 5 per cent."

Tamil Nadu Finance Minister Thangam Thennarasu has stressed revenue loss for states as has Punjab.

The Karnataka government estimates a revenue loss of Rs 15,000 crore annually and Punjab Finance Minister Harpal Singh Cheema has put the figure for his state at more than Rs 4,000 crore annually.

Meanwhile, Union Finance Minister Nirmala Sitharaman has written to the finance ministers of all states, expressing gratitude for their support and role in helping implement the landmark overhaul of the GST rates.

In an interview with the Press Trust of India, Sitharaman said states expressed their views on the proposal to rejig tax rates but ultimately agreed that it was for the benefit of the people, an argument that helped reach a unanimous decision at the GST Council meeting on September 3.

She said states were always in favour of rate reduction and their only concern was revenue implications after tax cuts.

"I even appealed to them, saying, for the sake of the people of India, Please. It's not just the states. It's even the Centre that is going to get affected by the reduction. But we'll make up for it because once the rates come down, people are going to come out to buy, and that will take care of it (revenue impact)," Sitharaman said. "That's how a consensus was arrived at."

Feature Presentation: Rajesh Alva/Rediff