Union Finance Minister Nirmala Sitharaman on Thursday firmly ruled out any compensation to states for potential revenue losses from the latest round of GST rate cuts, stressing that the impact will be shared equally between the Centre and states.
Addressing a discussion on GST in Kolkata, Sitharaman said opposition-led states had voiced concerns during the GST Council meeting about possible revenue shortfalls due to rate rationalisation. In response, she clarified that there is "no donor-donee relationship" within the Council.
Equal Revenue Impact
Explaining the revenue-sharing formula, Sitharaman said:
"If GST is divided 50/50 between the Centre and the states, 41% of the Centre's share still goes back to the states. Ultimately, the Centre retains only about 23%. So if revenue falls, it affects the Centre as much as the states."
She added that the Council operates on equality, with both the Centre and states equally responsible for the outcomes of rate-related decisions.
States Backed Reforms
Despite initial objections, Sitharaman thanked state finance ministers for constructively supporting the rate cuts, saying she had personally written letters to each of them appreciating their cooperation.
Plugging Loopholes
The Finance Minister also pointed to past issues of misclassification and misuse that caused revenue leakage. She cited the example of popcorn, where salted and sweetened varieties were taxed differently, enabling "gaming of the system." The new reforms, she said, are designed to plug such loopholes.
GST 2.0 to Boost Economy
Sitharaman reiterated that the GST 2.0 reforms, which take effect on September 22, are expected to inject Rs 2 lakh crore into the economy, boosting demand across sectors and benefiting India's 140 crore population.
Calling GST 2.0 a "new generation reform", she said, "This could not have been achieved with any other tax reform."
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