GST rate cuts affect Centre and states equally, no donor-donee model: Sitharaman

Kolkata, Sep 18 (PTI) Union Finance Minister Nirmala Sitharaman on Thursday made it clear that the Centre was not considering any compensation to states for potential revenue loss arising from the latest Goods and Services Tax (GST) rate cuts, stressing that the impact will be shared “equally” and given the devolution of taxes, while the Centre's share will be even smaller.

The opposition was putting pressure on the BJP-led central government, seeking compensation of potential revenue loss from GST rationalisation.

Speaking at a BJP-organised discussion on GST in Kolkata, Sitharaman said that during the GST Council meeting, several states, particularly those governed by opposition parties, raised concerns over the proposal to reduce rates, and asked what would happen if they led to revenue losses and how that gap could be filled.

Sitharaman said that in response, she had explained that there is "no donor-donee relationship" within the GST Council.

"If GST is divided 50/50 between the Centre and the states, 41 per cent of the Centre's share still goes back to the states. Ultimately, the Centre retains only about 23 per cent. So if revenue falls, it affects the Centre as much as the states," she said.

The Union finance minister emphasised that the Council operates on the principle of equality, with both the Centre and states equally responsible for outcomes of rate decisions.

"A revenue impact would seriously affect the Centre as well," she added.

Despite the initial concerns, Sitharaman expressed gratitude to state finance ministers for constructively agreeing to the rate cuts, and said she had written personal letters to each of them acknowledging their support.

The Union finance minister also pointed to past revenue challenges stemming from misclassification of items and "gaming of the system", citing examples like popcorn in which salted and sugary versions were taxed differently, leading to loss of revenue.

Sitharamn said the reforms now aim to plug such loopholes.

She added that GST 2.0 is expected to push Rs 2 lakh crore into the economy, boosting demand and benefiting the entire 140 crore population.

"This could not have been achieved with any other tax reform," Sitharaman said.

The rate reductions, part of what Sitharaman called "new generation GST reforms", will take effect on September 22. PTI BSM NN