Hyderabad: While welcoming rate rationalization of GST, State Deputy Chief Minister Bhatti Vikramarka has proposed that rationalisation should be supported by a robust revenue protection framework. States’ revenue loss must be fully compensated through a mechanism similar to the GST Compensation Cess and an additional levy on sin and luxury goods should be imposed in order to maintain the current effective level of taxation, he said. These proceeds must be fully transferred to the States, which are already experiencing rising fiscal stress alongside an erosion of fiscal autonomy, the Deputy CM added.

Bhatti attended the review of the final report of the Group of Ministers on restructuring of compensation cess, Life and Health Insurance and rate rationalization and discussed in detail in the GST Council meeting. He put forward the state’s perspective on the impact of rate rationalisation and concerns of states.

He informed the council that any reduction in the revenues of the states will have direct impact on essential services like health and education and welfare schemes; which will have effect on common man and middle class, Further, non-availability of funds for infrastructure projects will have a drastic impact on development of the states.

Prior to GST, the states were having flexibility to plan and raise the revenues to cater to the needs of the states.

Now states don’t have such fiscal maneuverability of raising revenues whereas expenditure is the responsibility of the states.

The Union should raise loans to compensate the balance revenue loss of states (both due to rate rationalisation and loss of compensation cess) and repay the same through extension of the compensation cess beyond 5 years, as per the past precedence, Bhatti said.

Base year for compensation should be FY 2024–25. The state revenue for the year 2024-25 should comprise the GST revenues of the state and the compensation cess due to the state based on place of supply. Protection should be granted at the rate of 14% p.a. which is also the average of the growth rates of the preceding three financial years. Compensation should be assured for a minimum of five years, beyond which it may be reviewed based on GST buoyancy.