States fear GST loss; rejig to fuel spending, growth

Reforms to cool inflation and lift growth; some states press for compensation

- Rhik Kundu, Subhash Narayan & Gireesh Chandra Prasad

States upset by revenue loss from tax cuts have pressed the Centre to make good their losses, a day after the Goods and Services Taxes Council pulled off the biggest overhaul of India's indirect tax regime.

Eight states ruled by non-Bharatiya Janata Party (BJP) parties have urged the Centre to set up a group of ministers to study revenue losses and explore possible compensation mechanisms, said Rajesh Dharmani, Himachal Pradesh's town and country planning minister. Dharmani, who represented the state at the GST Council said revenue protection is critical for states in view of mounting fiscal pressures.

"As far as the goods and services tax (GST) rationalization is concerned, there was no difference of opinion at all; all states supported it," he said.

Many states are concerned about losing revenue once two tax brackets-12% and 28%-are scrapped and numerous items shifted to lower slabs, a change that the Centre projects may erode tax revenues of *48,000 crore.

Ministers from Kerala, Tamil Nadu, Telangana, Karnataka, Punjab, Himachal Pradesh, West Bengal and Jharkhand have repeatedly sought compensation for the lost revenue; however, the Centre is confident that an expected spending boom will bump up tax revenue.