Eight Opposition-ruled states – Karnataka, Kerala, Punjab, Himachal Pradesh, Telangana, West Bengal, Tamil Nadu and Jharkhand – have supported the proposal to reduce GST rates on large-scale consumer goods and rationalise the number of slabs, Congress leader Jairam Ramesh said on Saturday. But their support comes with key conditions.
The first demand, Ramesh noted, is a mechanism to ensure that the benefit of tax cuts is passed on to consumers.
Second, “compensation should be provided to all states for five years, with 2024/25 considered as the base year, because the rate cuts are certain to have an adverse impact on the states' revenue income.”
Third, “an additional duty of more than the proposed 40% should be imposed on 'sin goods' and luxury items, and the entire revenue generated from it should be transferred to the states.”
Currently, about 17–18 per cent of the Centre’s revenue comes from various cesses, which are not shared with states.
“These demands are being considered entirely reasonable, and they have also received support from research papers recently published by the National Institute of Public Finance and Policy (NIPFP) under the Ministry of Finance,” Ramesh wrote on X (formerly Twitter).
The Congress has long been advocating “GST 2.0” to reduce slabs, simplify procedures, and protect the interests of states, particularly small businesses.
“It is hoped that the GST Council meeting scheduled for next week will not be just an exercise to grab headlines, as has often been the case with the Modi government—but will literally advance the spirit of true cooperative federalism,” Ramesh said.
On August 20, Union finance minister Nirmala Sitharaman presented to Groups of Ministers (GoMs) of the state the Centre’s proposal for sweeping reforms: tax rates streamlined to 5 per cent and 18 per cent, and a special 40 per cent levy on five to seven items including “sin” goods such as cigarettes.
The GST is currently levied at four slabs, 5, 12, 18 and 28 per cent. Essential goods are taxed at nil or 5 per cent, while luxury and demerit goods fall in the 28 per cent bracket with cess on top.
Sitharaman’s presentation to state ministers lasted about 20 minutes, during which she argued for the necessity of reforms, according to reports.
Prime Minister Narendra Modi has said the reforms could be rolled out by Diwali. The government also hopes the impact of US President Donald Trump’s punishing 50 per cent tariff on Indian goods would be lessened by the consumption boom the GST rationalisation is hoped to spur.