Opposition-ruled states have demanded a 5-year compensation package from the Centre for the potential revenue loss following the GST rate reduction proposed by the Modi government.

The demand, articulated by Congress leader Jairam Ramesh on Saturday on X, may queer the pitch for the GST Council meet slated next week, where the Centre is expected to push through the cuts promised by Prime Minister Narendra Modi before Diwali.

The Centre is yet to spell out the quantum of revenue loss from the indirect tax cut aimed at boosting domestic consumption in the shadows of the Trump tariffs, which is feared to affect export-driven labour-intensive industries such as apparel, gems and jewellery and impact jobs.

Sales of discretionary items such as consumer durables, automobiles and two-wheelers have been in the slow lane ever since PM made the public announcement from the Red Fort on Independence Day, prompting industries to urge the Centre to expedite the cut. But the effort may be hit if consensus is found lacking in the GST Council meeting on September 3-4.

While extending their support to the cut in GST rate slabs for mass consumption items, Ramesh also demanded a mechanism to ensure the benefits get passed on to consumers.

According to him, the eight opposition-ruled states—Karnataka, Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu, Telangana and Bengal—demanded compensation starting with 2024-25 as the base year, as their revenues are bound to be adversely impacted by the rate cuts.

The states have also demanded additional levies on ‘sin’ and luxury goods over and above the proposed 40 per cent be fully transferred to states, he said, adding the Centre gets close to 17-18 per cent of its revenue from various cesses that are not shared with the states.

The Congress leader stressed that these demands are perfectly legitimate and are bolstered by recent papers published by the union finance ministry’s own National Institute of Public Finance and Policy.

Ramesh further said the Congress has also been stressing the essentiality of ensuring that the interests of all states are fully protected.

“It hopes that the GST Council meeting scheduled for next week will not be merely a headline-grabbing exercise so typical of the (Narendra) Modi government, but will also advance the cause of genuine cooperative federalism in letter and spirit,” he posted on X.

The high-powered GST Council, chaired by finance minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation. The two-day meeting will be held in
New Delhi.

The council, comprising finance ministers of all states and Union Territories, besides that of the Centre, will deliberate on the recommendations made by the three GoMs on rate rationalisation, compensation cess and health and life insurance.