Opposition-Ruled States Demand 5-Year Compensation for Proposed GST Reforms
Finance ministers from eight opposition-ruled states have collectively demanded a five-year compensation package from the central government over proposed GST reforms. They estimate that consolidating the current four-tier structure into a two-tier system could cause an annual revenue loss of up to ₹2 lakh crore. The group plans to formally present its proposal, which also suggests an additional levy on sin and luxury goods to protect state finances, at the upcoming GST Council meeting.
Unpacked:
The eight opposition-ruled states demanding compensation are Karnataka, Jharkhand, Punjab, West Bengal, Tamil Nadu, Kerala, Telangana, and Himachal Pradesh.
States estimate a ₹2 lakh crore annual loss because consolidating the GST's four-tier structure into two tiers is expected to reduce overall tax rates, especially on mass-consumption items, significantly shrinking their GST collections by 15–20%.
States propose an additional levy on sin and luxury goods, beyond the suggested 40% rate, to replace the previous cess system. They request that all proceeds from this levy be fully transferred to states to protect their finances.
States have long voiced concerns about GST complexity and revenue shortfalls. Critics like Rahul Gandhi have called GST a 'Gabbar Singh Tax,' highlighting burdens on small businesses and frequent calls for rate simplification and greater protections for state revenues.