GST Council continues discussions on rate rationalisation

The first day of the meeting of the Goods and Services Tax Council on Wednesday continued late into the night with the Centre and the states discussing the proposed rate rationalisation under the indirect tax levy as well as concerns over compensation.

According to sources, several states, including Karnataka, West Bengal, and Telangana raised the issue of potential revenue losses with rate rationalisation under GST and also sought estimates of probable revenue loss from the proposal.

Eight Opposition-ruled states had also met earlier in the day before the GST Council meeting to discuss the proposals.

Jharkhand Finance Minister Radha Krishna Kishore, who attended the meeting of the Opposition states, said his state will lose about Rs 2,000 crore revenue loss from the Centre's proposal.

"If the Centre agrees to compensate us for whatever loss we would incur, then we have no issues in approving the agenda before the Council," he said.

On the whole, however, states are in support of the rate rationalisation proposal as it is aimed at benefiting the common people.

States have also raised concerns that there should be a mechanism to ensure passing on the benefits of rate cuts to end consumers.

The meeting of the GST Council is likely to meet on Thursday again to further discuss the proposals.

As part of Next Gen reforms of GST, the Centre has suggested a dual rate structure with 5% and 18% along with a higher tax of 40% on sin and luxury goods along with reforms for faster registration and refunds.

Experts and industry are also closely awaiting decisions of the GST Council, which is expected to give a significant boost to consumption through the lower rates amidst the festive season, as well as help in ease of doing business.

Saurabh Agarwal, Tax Partner, EY noted that the concerns of states, particularly manufacturing states, regarding potential revenue shortfalls under the GST framework are genuine.

"A collaborative and balanced approach is key to strengthening our fiscal federalism. The rationalization of GST rates, particularly the lower tax burden on food, essential commodities, vehicles, insurance, etc will put more money in the hands of consumers. This, coupled with an expected rise in overall consumption and a higher GST rate on certain goods moving to 40% should help mitigate any potential revenue loss," he said.