‘GST Council did not discuss compensation for States’, Pg1

Key Highlights:

• The GST Council did not discuss compensating states for revenue loss from recent rate cuts, according to the Finance Ministers of Telangana and Kerala.
• States' dependence on the Central government has increased under GST, limiting their ability to fund developmental expenditure.
• The Fifteenth Finance Commission recommended the Centre share 41% of its revenue with states, but cesses reduce the actual share to about 30-32%.
• Eight states, including Kerala and Telangana, sought compensation from the GST Council due to expected revenue hits from the Centre’s proposed rate cuts.

Detailed Insights:

• States argue that while they bear approximately 64% of the total government expenditure, the Centre receives about 63-64% of the total revenue.
• The Centre's use of cesses, which constitute about 20% of its revenue, further unbalances the fiscal structure as these are not shared with states.
• Prior to the GST Council meeting, eight states convened in Delhi to strategize their demand for compensation due to anticipated revenue shortfalls.
• The GST rate rationalisation committee did not receive detailed reports before the latest decisions, raising concerns about the lack of thorough analysis.
• States estimate significant revenue losses, with Kerala projecting a loss of around ₹8,000 crore-₹10,000 crore.
• The current GST system requires a significant rethink to address the increased dependency of states on the Centre for revenue.

Key Concepts Involved:

• GST (Goods and Services Tax): An indirect tax levied on the supply of goods and services.
• Cess: A tax levied for a specific purpose, added on top of the existing tax.
• Finance Commission: A constitutional body that recommends principles governing the distribution of tax revenues between the Centre and States.