Indian States Alarmed by Proposed GST Rate Cuts, Fear Revenue Losses and Demand Compensation

• India proposes simplifying GST by reducing tax slabs from four to two main rates: 5% and 18%
• Most items taxed at 12% would move to 5%, and 90% of goods at 28% would shift to 18%
• A 40% rate would apply to certain goods like tobacco
• Analysts estimate an annual revenue loss of ₹1.8 trillion, with central government losing 0.15% of GDP and states losing 0.36% of GDP
• GST collections are crucial for states, contributing over 40% of their tax revenue
• States like Punjab, Kerala, and Tamil Nadu are concerned about lack of compensation for past and projected losses
• Some leaders call the changes devastating and demand detailed impact assessments
• Proposals were conditionally endorsed by a panel of state representatives, pending compensation resolution
• Changes expected around Diwali, before key elections in Bihar
• GST Council to review and vote on the proposal in September or early October
• A three-fourths majority is needed for approval, with the ruling coalition likely having enough support
• Reform aims to simplify tax compliance and boost consumption but has reignited tensions between central and state governments
• States urge the federal government to address trust issues and ensure revenue shortfalls are compensated

Source: globalvatcompliance.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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