The GST Council is likely to soon set up a new Group of Ministers (GoM) to address the issues of initial revenue losses incurred by the states due to the rate rationalization under the Goods and Services Taxes (GST) reforms, said an official aware of the matter. States like Kerala and West Bengal had flagged concerns of severe revenue loss due to the rate rationalisation implemented in September.

“Revenue loss for the states will be for the initial few months and it will be compensated with the surge in consumer demand. Yet, it is likely that the government will set up a separate Group of Ministers (GoM), which will be looking into the matter of revenue loss incurred by the states,” said the source. Kerala could face an annual revenue loss of Rs 8,000 to Rs 10,000 crore due to the GST reforms, Finance Minister KN Balagopal had recently said. According to him, in just six months of the current fiscal year, Kerala has already incurred a loss of Rs 5,000 crore.

The Indian government estimates a revenue implication of Rs 48,000 crore annually from the recent GST reforms, primarily due to rate cuts, though some independent reports suggest the loss could be significantly higher. As per the government estimate, the gross revenue loss would be Rs 93,000 crore, which will be partially offset by additional revenue of Rs 45,000 crore due to shift in goods from 28% slab to 40%. The finance ministry’s assessment is based on the FY24 consumption basket, keeping static assumptions.

A Group of Ministers (GoM) for GST is a panel formed by the GST Council for tackling complex issues, such as rate rationalisation, insurance taxes, and system reforms, and they work on the issues to provide recommendations. These GoMs consist of ministers from various states and union territories to ensure representation and facilitate comprehensive discussions before presenting findings to the Council.

States like Telangana even asked the Centre to compensate for the revenue loss that will be incurred by the state. Under GST reforms, a two slab structure of just 5% and 18% have been introduced diminishing the previous four-slab structure and even for few items and services, the rate has been made nil.

Source: The New Indian Express