SUMAN K SHRIVASTAVA
Ranchi, August 29: Jharkhand has demanded annual compensation of nearly ₹2,000 crore to safeguard its revenues if the proposed rationalisation of Goods and Services Tax (GST) rates comes into effect. Finance Minister Radha Krishna Kishore raised the state’s concerns at a meeting of finance and taxation ministers from eight states, held at Karnataka Bhavan in New Delhi on Friday.
The meeting, attended by ministers from Himachal Pradesh, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana, West Bengal and Jharkhand, was convened to formulate a joint position ahead of the GST Council’s upcoming deliberations on September 3 and 4.
Centre proposes two-slab system
The central government has proposed a plan to simplify the GST structure by reducing the current four tax slabs of 5%, 12%, 18%, and 28% to just two slabs. Under the proposal, the 12% and 28% slabs would be scrapped, which officials argue will lower prices, boost consumption and strengthen the economy.
However, the states caution that the potential benefits for consumers may come at the expense of their fiscal stability. “The financial implications for states have not been fully assessed. Without a compensation mechanism, the loss of revenue will be severe,” an official present at the meeting said.
Jharkhand’s special concerns
Jharkhand, being a small manufacturing state heavily dependent on mining, stands to lose significantly under the rationalised system. Coal, iron ore, bauxite and other minerals produced in the state are largely transported to other states.
During the pre-GST era under the Value Added Tax (VAT) system, Jharkhand earned revenue from the Central Sales Tax (CST) on such interstate supplies. With the introduction of GST on July 1, 2017, that source of revenue vanished, leaving the state reliant on consumption-based taxation.
“Jharkhand’s internal revenue collection has already suffered since GST was rolled out. If rates are rationalised further without protection, we estimate an additional annual shortfall of about ₹2,000 crore,” Finance Minister Radha Krishna Kishore said after the meeting.
Compensation demand
When GST was first implemented, the Centre had agreed to compensate states for any revenue losses, ensuring 14% annual growth in protected revenue for five years. Jharkhand, like other states, received compensation until June 2022.
The new rationalisation plan, however, does not include any proposal for continued revenue protection. Kishore, along with his counterparts from the other states, argued that this omission could widen fiscal imbalances across the country.
The eight states jointly decided to submit a memorandum to the GST Council, urging the Centre to set up a robust framework for revenue protection. They also suggested levying supplementary duties on sin and luxury goods to help offset the revenue gap.
Call for cooperative federalism
The joint statement stressed that while simplification and rationalisation of GST rates are desirable objectives, they cannot come at the cost of states’ fiscal autonomy. “The spirit of cooperative federalism must guide any reform. Rationalisation without compensation is unacceptable,” the states said in their memorandum.
They recommended that the Centre guarantee compensation for at least five years to ensure a smooth transition and prevent disruptions in state finances.
What lies ahead
The final decision now rests with the GST Council, which is scheduled to meet in early September. Jharkhand and other states are expected to press their case strongly, framing the debate as not just a matter of tax reform but also of safeguarding the federal balance.
For Jharkhand, where much of the economy depends on mineral production and inter-state supplies, the stakes are especially high. As Kishore put it: “We welcome reforms that simplify GST. But reforms must also protect the revenues of states like ours, or else the burden will fall on the weakest.”