Hyderabad: Southern States losing more under new tax-sharing formula

States demand GST compensation for 5 years more
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States demand GST compensation for 5 years more

Highlights

  • GST system is very much against principles of federal system; State governments are facing financial problems because of GST”
  • FICCI holds unique event “South India GST Conclave - an Online Interaction with ministers of three Southern States”

Hyderabad: In a first-ever attempt the FICCI, brought together four Southern State Councils of it on board to organise a unique event "South India GST Conclave - an Online Interaction with ministers of three Southern States", Kerala, Karnataka and Tamil Nadu. Murugesh R Nirani, Karnataka Industry Minister, K N Balagopal, Kerala Finance Minister and P Thiagarajan, TN Finance Minister, participated in the conclave.

Balagopal appreciated the councils for organising a conclave on such a need of the hour subject. Kerala tax collection used to be 14-16 per cent before the GST, but it has reached a stagnation which may be partly due to Covid and partly due inherent structural defects of the system.

The revenue share of the States was reduced from 16 to 11.3 per cent added to the woes. It has become a very serious situation, he said. "The GST system is very much against the principles of the federal system. The State governments are facing financial problems because of GST."

Thiagarajan stated that the GST system 'is shaky'. He deplored the States' loss of fiscal autonomy in a Centralised federal system. The States have very little independence in the matter of taxation. This is also confirmed by a survey.

The States primarily depend on two sources for their revenue - their revenue and the Central transfers. Since its implementation, the GST regime has reduced the resource-generating capacity of the States. "It is also leading to inter-State inequality." To tide over a few loose ends, he suggested that data must be used to make decisions.

Nirani said Karnataka had given its overall satisfaction about it. He thanked Prime Minister Narendra Modi and others for major tax reforms. The GST, he said, enabled scientific assessment of tax. The GST helped more tax compliance. The States have seen increased revenues. However, there are few issues still to be resolved, he said.

Earlier, Muralidharan, FICCI Telangana chairman explained why they felt the need for organising such a conclave and what the context was. The views and concerns expressed by participants will be compiled and a report shall be submitted to Union Finance M Ministry, he said.

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