GST reform: Punjab FM seeks robust compensation mechanism to ensure fiscal stability of states

New Delhi, Aug 29 (PTI) Punjab Finance Minister Harpal Singh Cheema on Friday said the Centre under the current proposal to rationalize Goods and Services Tax (GST) rates should provide adequate compensation to states to prevent financial instability, asserting that such a balanced approach will protect the fiscal autonomy of states while advancing the objectives of GST reform in the true spirit of cooperative federalism.

He emphasised that the benefits of this measure should reach the poor people of the country who are facing inflation, rather than corporate houses.

He stressed that if the current proposal for price rationalisation is implemented without a provision for compensation to cover revenue loss, it will lead to financial instability in the states and harm the country's federal structure, which is unacceptable.

The Punjab finance minister, who attended a meeting on 'consultation of GST rate rationalisation' along with finance ministers and representatives of Karnataka, Himachal Pradesh, Jharkhand, West Bengal, Kerala and Telangana organised at Karnataka Bhawan here, said that it is the considered recommendation of the states that rate rationalisation should be supported by a robust revenue protection framework.

The Punjab finance minister said that the GST was rolled out in July 2017 and the principal of revenue neutrality was central to this design, but after its implementation, states have to face significant revenue losses.

Cheema, according to a statement issued by the state government, said that after the implementation of this, Punjab has to bear a financial loss of around Rs 1.11 lakh crore. Though the state received Rs 60,000 crore when the compensation cess was active, till date no step has been taken on part of the central government to compensate the remaining loss amounting to Rs 50,000 crore to Punjab.

Interacting with the media, he said that all these states have strongly voiced for a mechanism of additional levy on sin and luxury goods to be imposed in order to maintain the current effective level of taxation. These proceeds must be fully transferred to states to compensate them for experiencing rising fiscal stress alongside an erosion of fiscal autonomy, according to the statement.

"Without revenue stabilisation, how can the states perform their constitutional duty of social welfare? The Centre should not incline towards the theory of shifting the burden on the shoulders of the states and retain the revenues with itself. If the states are financially strong only then they can play a pivotal role in further strengthening the country so the revenue interests of all the states must be protected and robust mechanism should be made in achieving this goal," said Cheema, adding that these states are representing all the other states on this issue.

Replying to a question on the flood situation in Punjab, he said the Union government should come forward to help Punjab in this calamity.

He further said that the Punjab government is working sincerely to help the people of state in the current tough times and will demand a special package from the Centre after duly assessing the damage. PTI SKC HVA