The Proposed GST Shake-Up and States’ Concerns
A major overhaul of the GST system is on the table, with the central government proposing to simplify the current four-tier tax structure into just two slabs: 5% and 18%. This would replace the existing 5%, 12%, 18%, and 28% rates. A separate 40% slab is also being proposed for sin and ultra-luxury goods.
While the plan aims to streamline taxes, it has triggered serious concerns among several opposition-ruled states. These states fear a massive revenue shortfall, estimating a collective loss of up to ₹2 lakh crore a year. They argue that previous rate reductions have consistently led to revenue losses, contradicting the theory that tax cuts would spur economic activity and increase revenue.
States’ Demands and Proposals
In response to these fears, states like Karnataka, Kerala, Punjab, and Tamil Nadu are demanding protection for their financial stability. Their key demands are:
- Compensation for 5 Years: The states want the Centre to compensate them for the anticipated revenue loss for at least five years, with the possibility of an extension if their finances don’t stabilize.
- A New Levy: They’ve proposed an additional duty on luxury and sin goods, with the proceeds being distributed directly to the states.
- Protection Against Profiteering: They are also calling for a mechanism to ensure that businesses pass on the benefits of tax cuts to consumers instead of pocketing the profits.
Finance ministers from these states are scheduled to present their case at the upcoming GST Council meeting on September 3 and 4. They emphasize that without adequate compensation, the proposed changes could severely impact public services and development projects across the country.