GST Council did not even discuss the issue of compensating States for revenue loss: Telangana and Kerala

The GST Council did not discuss the issue of compensating States for revenue loss attributable to the newest fee cuts, the Finance Ministers of each Telangana and Kerala, members of the Council, instructed The Hindu. They added that GST has considerably elevated the dependence of the States on the Centre, and has eroded their skill to boost their very own funds for developmental expenditure.

Speaking at The Hindu Mind occasion in New Delhi, Telangana Deputy Chief Minister Bhatti Vikramarka Mallu and Kerala Finance Minister Okay.N. Balagopal opened up about the points that the States had with the present Centre-States fiscal dynamic.

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“The Government of India had assured the States that they would get 14% tax as against the pre-GST period where it used to be somewhere around 14-18%,” Mr. Mallu defined. “But by the end of this period, what we have realised is that, forget about 18%, they have not stabilised 14% growth in tax revenue in these five years. It is around 7-8%.”

Coupled with that is the indisputable fact that the bulk of the expenditure in the nation is incurred by the States, whereas most of the revenue goes to the Centre.

“As per the Fifteenth Finance Commission report, around 64% of the total expenditure of the entire government is borne by the State governments,” Mr. Balagopal stated. “And they are saying that out of the total revenue of the government, all over India, around 63-64% is coming to the Union. So, two-thirds of the expenditure is borne by the States but two-thirds of the revenue goes to the Centre.”

This construction, the two Ministers added, was additional unbalanced by the Centre’s use of cesses. They stated that, whereas the Fifteenth Finance Commission had really helpful that the Centre share 41% of its revenue with the States, about 20% of its revenue comes from cesses that do not should be shared. As a consequence, about 30-32% of Central taxes are literally shared with States.

Expecting a big hit to revenues attributable to the Centre’s proposed fee cuts, eight States, together with Kerala and Telangana, met in Delhi previous to the GST Council assembly on September 3 and determined to ask the Council for compensation.

“Actually, in the agenda, the compensation question was also there,” Mr. Balagopal stated. “But that agenda was not discussed. We gave our speeches, we gave our note, but what could happen on a compensation cess was not discussed.” 

Mr. Mallu stated that every one of these elements elevated the States’ dependence on the Centre and that the GST system would wish a substantial re-think.

“The dependency on the Centre for the States… has increased with the GST system because the entire collection is coming to the Centre and from the Centre it is coming to the States,” Mr. Mallu stated.

Mr. Balagopal stated that the GST fee rationalisation committee, which normally receives detailed reviews on any rationalisation plans, did not obtain one previous to the newest choices.

“I was in the GST rate rationalisation committee for the last 3-4 years,” he defined. “When we were sitting in the meeting, all the detailed study reports used to come. This time, no report came, only the Union Government’s suggestion. So, a detailed analysis was not done.” 

“How much is the loss, there’s no clear picture,” Mr. Balagopal added. “We calculated that for Kerala, we are going to see around ₹8,000-10,000 crore revenue loss. Every state has its calculation. So, the actual all-India picture is not there.”