New Delhi: Before the 56th GST Council meeting, finance ministers from eight opposition-ruled states met in New Delhi to discuss the Centre’s proposal to change the GST tax structure. These states include Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal.
Their main concern is that the new tax slabs could reduce their income. They are asking the central government to compensate them for any revenue loss that may happen due to the new GST rates.
Jharkhand Raises Red Flag Over Rs 2,000 Crore Loss
Jharkhand Finance Minister Radha Krishna Kishore said that his state could lose about Rs 2,000 crore if the new GST rates are implemented. He added that they are open to supporting the reform if the Centre promises to cover the losses. He also said that the issue might not require a vote, as it's the Centre’s duty in a federal setup to protect states’ earnings.
What Is the Centre Planning?
The central government wants to simplify the GST system. It has proposed to cut down the current four tax slabs (5 percent, 12 percent, 18 percent, 28 percent) to just two rates — 5 percent and 18 percent. Items in the 12 percent and 28 percent slabs will be moved to these new rates.
Some luxury and demerit goods like SUVs, tobacco, and pan masala will be taxed at a special 40 percent rate. There may also be extra tax on top of that rate.
What Will Get Cheaper?
If the Council agrees, everyday items like ghee, drinking water (20L), namkeen, pencils, bicycles, hairpins, and some medicines may move to the 5 percent slab. Electronics like TVs and washing machines could become cheaper as they move from 28 percent to 18 percent.
What Happens to Compensation Cess?
To make up for states' losses when GST started in 2017, a compensation cess was introduced for 5 years. It was extended till March 2026 to repay COVID-era loans. That loan is expected to be repaid by November 2025, after which the cess will end. The Council now has to decide how to tax luxury and demerit goods once that cess ends.
