Centre to Assuage State Fears on GST

Govt feels higher consumption will offset loss in revenue

- Gireesh Chandra Prasad

Heartburn in state capitals looms over a landmark indirect tax reform expected this week, given that a proposal to rework rates and raise spending could also sap tax revenue.

While the Centre will assure states that it will examine their concerns at the Goods and Services Tax (GST) Council meeting over Wednesday and Thursday, it does not plan to compensate them for losses like in the early years of GST, two people aware of the matter said.

The GST restructuring aims to simplify the current multi-tiered system into a two-slab structure of 5% and 18%, while removing the 12% and 28% rates and introducing a special 40% rate for luxury and "sin" goods. The restructuring is expected to shrink this year's combined GST collection by ₹50,000-55,000 crore.

"States' concerns around short-term revenue loss will be looked into. Increased consumption demand will help make up for any revenue impact as can be seen from past instances of tax rate cuts," said one of the two persons quoted above.

Officials from the Centre and states will meet a day before the GST Council's meeting. The Centre rarely makes its proposals to the GST Council known in advance.