Karnataka CM demands revenue safeguards ahead of GST rate rationalisation talks

Bengaluru, Aug 29 (PTI) Karnataka Chief Minister Siddaramaiah on Friday called for the Centre's proposed GST rate rationalisation to be backed by a robust revenue protection framework for states, ahead of the GST Council meeting next week.

He said the rationalisation process should not compromise state finances and sought the inclusion of three safeguards in the reform.

"The rationalisation of GST rates must be supported by a robust revenue protection framework for states, a supplementary levy on sin and luxury goods, and a guaranteed compensation mechanism for at least five years," Siddaramaiah said in a statement here.

His remarks came against the backdrop of a consultative meeting on GST rate rationalisation held in New Delhi on Friday, where representatives from eight opposition-ruled states, including Karnataka, voiced concerns over potential revenue losses from the Centre’s current proposal.

Briefing reporters after the meeting, Karnataka Finance Minister Krishna Byre Gowda said each state is expected to lose 15-20 per cent of its current Goods and Services Tax (GST) revenue.

Opposition-ruled states demanded that all states be compensated for five years for the likely Rs 2 lakh crore annual revenue loss due to the Centre's GST reform proposal.

They also sought a mechanism to prevent profiteering by businesses after tax cuts to ensure benefits reach the common man.

Siddaramaiah welcomed the consensus draft prepared by opposition-ruled states at the meeting, which will be placed before the GST Council, chaired by the Union Finance Minister and comprising all state ministers, at its September 3-4 session.

"This draft seeks to ensure reforms that are both fair and sustainable," he said.

"We are for rationalisation of GST rates, easing compliance and reducing the burden on the people. But such reforms must be accompanied by a robust framework that protects the fiscal interests of the states. Without this, states will find it difficult to sustain welfare and development programmes, leading to a serious weakening of their financial autonomy," Siddaramaiah said.

He noted that opposition leaders had consistently objected to the "faulty" implementation of GST in 2017 and have always demanded rationalisation of rates.

According to him, even within the GST Council, states have repeatedly pressed for rationalisation, always emphasising that state revenue interests must be safeguarded. Karnataka has raised this issue in multiple Council meetings.

He added that GST is a joint responsibility, founded on equal accountability and respect for both states and the Centre. "For the sake of the endurance and stability of GST, the Centre and states must work together," he added.

"This requires states to be taken into confidence and their concerns addressed adequately. We expect the central government to respond constructively and positively, and engage with states in good faith in the true spirit of cooperative federalism." Siddaramaiah claimed that Karnataka has already faced discrimination in fund devolution from the union government, "suffering an annual shortfall of nearly Rs 25,000 crore." "Any further erosion of GST revenues will only compound this injustice and directly affect our capacity to deliver on the promises of development and welfare," he claimed.

The Centre has proposed a two-tier GST structure of 5 and 18 per cent, replacing the current four-slab system of 5, 12, 18, and 28 per cent, plus a compensation cess.

Under the proposal, goods and services would be classified as merit and standard and taxed at 5 and 18 per cent.

A 40 per cent slab has been proposed for select items, such as sin goods and ultra-luxury items. The Centre has not provided an estimate of the revenue loss due to the rate rationalisation. PTI AMP SSK ROH