State govts welcome GST rate cuts, flag concerns over revenue loss

State governments, including from the INDIA bloc, welcomed the new GST rates but expressed concerns over potential revenue losses, calling for extended compensation and changes in tax provisions

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State governments and chief ministers cutting across party lines on Thursday welcomed the new goods and services tax (GST) rates as people-friendly.

 

However, some INDIA bloc-ruled states flagged a potential revenue loss, demanded greater devolution to the states by the 16th Finance Commission, and also asked for extending compensation to the states by another five years to protect their revenues.

 

The Tamil Nadu government hailed the GST rate rationalisation but expressed concern over state revenues. State Finance Minister Thangam Thennarasu suggested either continuing the present dispensation of cess provision through a constitutional amendment or increasing the bound rate of tax only for sin (tobacco products, among others) and luxury goods through a GST Act amendment.

 

Kerala Finance Minister K N Balagopal said the southern state could face an annual revenue loss of ₹8,000 crore-10,000 crore due to rationalisation. Balagopal said the Left Democratic Front government supported the rate cuts, which would reduce prices, but the central government should ensure that the benefits were passed on to the consumer.

 

The minister said that compensation should be provided for the states but the issue was not taken up seriously during the GST Council meeting.

 

According to Balagopal, the annual revenue loss from four sectors — cement, electronics, auto, and insurance — is estimated at ₹2,500 crore. For Kerala, he said the impact would be disproportionately severe compared to the national average because the state’s consumption basket was heavily skewed towards items with higher rates.

 

Kerala had demanded the 28 per cent rate on lottery be retained and that state-run paper lottery be kept out of the present proposal of rate rationalisation, wherein the rate has been increased to 40 per cent.

 

Lottery sales are a major revenue source for the state. Balagopal also called for increasing the revenue share for states from GST collection to 60 per cent.

 

The Congress said one key demand of the states, made in the true spirit of cooperative federalism, remained unaddressed. It is extending compensation to the states for another five years. It termed it “GST 1.5” and said the wait for a “true GST 2.0” continued. The reduction in rates would have an adverse effect on states’ revenues, it added.

 

It said compensation for five years should have 2024-25 as the base year.

 

Congress leader and former finance minister P Chidambaram described the overhaul as a “U-turn” and said one was left with the thought that these steps were eight years too late.

 

The chief ministers of the Bharatiya Janata Party-led National Democratic Alliance welcomed the move, with Gujarat Chief Minister Bhupendra Patel stating it would improve “ease of living” for everyone.

 

Delhi Chief Minister Rekha Gupta lauded the nil GST rate on health insurance and educational items. Renewable energy has been supported, and it will benefit Delhi as “we are promoting solar energy”, she said.

 

Madhya Pradesh’s Mohan Yadav said the decision to slash GST from 12 per cent to nil on education materials, particularly charts, pencils, globes, and notebooks, would help students and also hailed the reduction on agricultural equipment from 18 per cent to 5 per cent.

 

Andhra Pradesh Chief Minister N Chandrababu Naidu described the changes as a “pro-poor and growth-oriented decision” that would benefit all sections of society.

 

Assam Chief Minister Himanta Biswa Sarma said the new GST rates would serve as a “super booster” for the Indian economy, bringing agility to small and medium businesses, spurring job creation, driving consumption, and, “most importantly, leaving more money in the hands of our people”.

 

Rashtriya Swayamsevak Sangh-affiliated Swadeshi Jagran Manch, Bharatiya Mazdoor Sangh, and Laghu Udyog Bharti issued statements lauding the government for the reduction in GST rates, stating that it would help micro, small and medium enterprises and also farmers.