GST Council to Deliberate Major Tax Overhaul Amid Opposition Demands for Compensation
Finance ministers from eight opposition-ruled states are demanding compensation for anticipated revenue losses ahead of a crucial GST Council meeting. The council will discuss a proposal to simplify the tax structure to just two main slabs (5% and 18%) and a special 40% rate for luxury and demerit goods. While the Centre believes lower rates will boost consumption, states fear significant revenue shortfalls and are uniting to press for a central government guarantee to cover potential losses from the major policy shift.
Unpacked:
Opposition-ruled states often rely more heavily on GST revenues to fund state programs and fear the new, lower rates will significantly reduce their income. They distrust the central government's compensation promises, recalling past delays or disputes over GST compensation payments, making them demand firm guarantees before agreeing to reforms.
The proposed simplification from four slabs to two (5% and 18%) would likely reduce taxes on many goods and services, especially those currently taxed at 12% or 18%. This could make items such as food, clothing, and appliances cheaper, while luxury and demerit goods would face a higher 40% tax rate.
The GST Council is chaired by the Union Finance Minister and includes finance ministers from all states and union territories. Decisions require consensus or weighted voting, with the Centre holding 33% and states 67% of the vote. Major reforms typically need broad agreement among states and the central government.
Yes, the central government previously promised compensation for state GST revenue shortfalls after GST was rolled out in 2017. However, there have been disputes and delays in payments, especially during economic downturns, leading to mistrust and demands for legally binding guarantees this time.