Eight Opposition-Ruled States Seek Compensation for Revenue Loss Post GST Rate Cut

The proposal suggests levying an additional duty on sin and luxury goods in addition to the proposed 40 per cent rate to maintain the current tax incidence
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NAGARAGOPAL

Opposition-ruled States on Friday demanded compensation for revenue loss due to the GST rate cuts, which they estimated to be between ₹1.5-2 lakh crore.

In a meeting here, finance ministers of eight Opposition-ruled States — Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal — drafted a joint proposal to be presented before the GST Council, which is expected to meet on September 3-4.

Extra levy

The proposal suggests levying an additional duty on sin and luxury goods in addition to the proposed 40 per cent rate to maintain the current tax incidence. They also stated that the proceeds from this levy should be distributed among States.

The eight States demanded that the base year for calculating revenue protection be fixed as 2024-25. “Should there be a deficit even after the imposition of the proposed additional levy (on sin and luxury goods), the Union Government should raise loans secured against the future receipts of the additional levy,” said the states’ proposal.

States’ concerns

“We are clear that we are for rate rationalisation. At the same time, the revenue interests of States should be protected. Benefits of rate rationalisation should reach the common people and not become a part of the windfall profits for some companies,” said Karnataka Revenue Minister Krishna Byre Gowda.

He said when GST was implemented, the revenue-neutral rate (RNR) was 14.4 per cent. Following the subsequent tax rate rationalisation, the net rate of taxation decreased to 11 per cent. The current proposal by the Centre to reduce GST rates and prune slabs will bring down the net rate of taxation to 10 per cent.

Kerala Finance Minister KN Balagopal said that the State only got about ₹32,000 crore from GST in FY25 compared to pre-GST sales tax revenue of ₹51,000 crore. Telangana finance minister Mallu Bhatti Vikramarka said the State will lose about ₹7,000 crore on account of the GST proposals. “This would be the case with every State. It will be difficult to go ahead with planned infrastructure and development activities,” he said.

Punjab FM Harpal Singh Cheema demanded that a mechanism to be set up to detect profiteering so that the benefits of rate rationalisation reach the common man.

Published on August 29, 2025