Finance minister Harpal Singh Cheema on Friday stated that the central government, under the current proposal to rationalise goods and services tax (GST) rates, should provide adequate compensation to states to prevent financial instability.
Cheema said that the benefits of this measure should reach the poor people of the country who are facing inflation, rather than corporate houses. “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,” he said after a meeting of finance ministers and representatives of the opposition-ruled states, including Karnataka, Himachal Pradesh, Jharkhand, West Bengal, Kerala and Telangana, in Delhi on the GST rate rationalisation.
The Punjab finance minister said, “It is the considered recommendation of the states that rate rationalisation should be supported by a robust revenue protection framework. Only 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 later told reporters 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. He said these proceeds must be fully transferred to the states to compensate them for experiencing rising fiscal stress alongside an erosion of fiscal autonomy. “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 can they play a pivotal role in further strengthening the country, so the revenue interests of all the states must be protected, and robust mechanisms should be made to achieve this goal,” he said.
