How consensus was struck on GST 2.0

A consensus around ‘Next-gen’ GST reforms, which were cleared on Wednesday, came about after more than 10 hours of discussions with all Opposition-ruled states demanding a mechanism to compensate them for revenue losses.

Ahead of the meeting of the 56th GST Council, finance ministers from eight Opposition states — HP, Punjab, Jharkhand, Karnataka, Kerala, Tamil Nadu, West Bengal and Telangana — met to discuss concerns over losses and welcome a simplified GST regime.

At the council meeting, the issue of compensation for revenue loss was not taken up for discussions, even though the Karnataka Revenue Minister Krishna Byre Gowda suggested that the issue be deliberated upon on September 4. Originally, the GST Council was to meet for two days on September 3 and 4, but the meeting was shrunk to one day, with rate rationalisation approval as the sole agenda on the table, sources told The Tribune.

The strongest case for compensation mechanism over revenue losses was made by the Karnataka’s revenue minister, Punjab’s Finance Minister Harpal Cheema and J&K CM Omar Abdullah.

Cheema is learnt to have said that Punjab had to forgo Rs 1.11 lakh crore revenue due to shift from VAT to the GST regime eight years ago and was yet to be fully compensated. Punjab has received Rs 61,000 crore compensation so far, with the rest outstanding. He argued for compensation cess to be continued. The cess, meant for five years since GST commencement in 2017, ended in June 2022. After 2022, the Centre has been collecting it to pay for loans it took to compensate states for losses during the Covid-19 pandemic. The cess will cease in October this year, once full loan recovery is made.

In the marathon meeting, Chhattisgarh and UP Finance Ministers pressed for voting. “This was the BJP’s agenda to isolate Opposition states that had no problems with the GST simplification agenda. We had welcomed it at the outset. All we wanted was a discussion on mechanisms for revenue loss compensation. But the government was just not in the mood to take up that item. Eventually, GST reforms were passed with consensus as they should have been,” said a finance minister of an Opposition state.

A source said Finance Minister Nirmala Sitharaman gave all ministers ample time to speak, but was concentrated only on passing the GST rationalisation reform. “Had there been a proposal to vote on the two items — GST reforms and revenue loss compensation mechanism — separately, we could have agreed. But FMs from the BJP-ruled states were pushing for a vote on a consolidated agenda, which was a ploy no one fell for,” said another state’s finance minister.

As for the government, the brief had been set the day Prime Minister Narendra Modi announced the GST reforms on Independence Day.

“This should not have been done. This agenda was solely the prerogative of the GST Council. The PM should have announced it after the GST Council approved it. But the reverse happened,” said another finance minister from an opposition state.

This source also said that ministers would continue to press for revenue loss compensation mechanisms in the next meeting of the group of ministers on revenue analysis.

Meanwhile, the government told anxious states that even the Centre would lose revenue just as states would once the ‘Next-gen’ GST reforms kick in. It added that everyone was in this together for the larger good of common Indians.

At Wednesday’s meeting, Punjab also demanded data on GST benefits in the past eight years with segregation of benefits and losses to the Centre and states and individual firms, including e-commerce companies.