<p class="bodytext">The introduction of Goods and Services Tax (GST) in 2017 promised a unified tax structure but ended up making states dependent on Central transfers. To offset potential revenue losses, the Union government introduced a five-year compensation mechanism, and it ended in June 2022. It is now proposing to rationalise GST slabs, primarily shifting goods into 5% and 18% categories, but concerns are rife among the states over the possibility of significant revenue loss. In Karnataka, Chief Minister Siddaramaiah has demanded a fresh five-year compensation window to safeguard the state’s finances. The rationalisation aims to simplify compliance and boost consumption. The fear of the states is not unfounded. For instance, the COVID-19 pandemic had aggravated financial uncertainties, and many states went in for increased borrowing to bridge the shortfall when the Centre delayed transfers.</p>.GST reform and ease of compliance.<p class="bodytext">The opposition in Karnataka, however, insists that the state’s fiscal woes are rooted not in GST but in the Congress government’s guarantee schemes. The Comptroller and Auditor General of India (CAG) also pointed to financial stress due to these welfare schemes. The Congress counter is that the distress is a legacy of the previous BJP government, which sanctioned projects worth Rs 2.7 lakh crore without budgetary provisions, and left pending bills of about Rs 35,000 crore. Moreover, the Siddaramaiah government claims that its guarantees have injected purchasing power into households, boosting consumption and consequently GST collections. Karnataka today ranks first in per capita income, a fact that the government attributes partly to its welfare model. Another sore point is the 15th Finance Commission award. The state has calculated a cumulative loss of over Rs 90,000 crore over five years, and is talking about being denied a special grant of Rs 5,495 crore recommended by the commission. This imbalance is particularly glaring for a state that contributes nearly 8.7% to the national GDP.</p>.<p class="bodytext">In this context, the Centre must adopt a balanced approach. It cannot afford to punish high-performing states that are significant contributors to the national economy. Social justice is important, and poorer states must be supported. But this should not mean hard-working, performing states are penalised. Non-performing states, too, should be held accountable; they cannot forever lean on crutches provided by other states. Karnataka’s MPs, especially from the BJP, must shed their passivity and lobby actively to ensure that the state receives its fair share of funds and that any loss due to the new GST structure is adequately compensated. Protecting fiscal federalism is not just a state demand; it is a Constitutional duty the Centre must fulfil.</p>
<p class="bodytext">The introduction of Goods and Services Tax (GST) in 2017 promised a unified tax structure but ended up making states dependent on Central transfers. To offset potential revenue losses, the Union government introduced a five-year compensation mechanism, and it ended in June 2022. It is now proposing to rationalise GST slabs, primarily shifting goods into 5% and 18% categories, but concerns are rife among the states over the possibility of significant revenue loss. In Karnataka, Chief Minister Siddaramaiah has demanded a fresh five-year compensation window to safeguard the state’s finances. The rationalisation aims to simplify compliance and boost consumption. The fear of the states is not unfounded. For instance, the COVID-19 pandemic had aggravated financial uncertainties, and many states went in for increased borrowing to bridge the shortfall when the Centre delayed transfers.</p>.GST reform and ease of compliance.<p class="bodytext">The opposition in Karnataka, however, insists that the state’s fiscal woes are rooted not in GST but in the Congress government’s guarantee schemes. The Comptroller and Auditor General of India (CAG) also pointed to financial stress due to these welfare schemes. The Congress counter is that the distress is a legacy of the previous BJP government, which sanctioned projects worth Rs 2.7 lakh crore without budgetary provisions, and left pending bills of about Rs 35,000 crore. Moreover, the Siddaramaiah government claims that its guarantees have injected purchasing power into households, boosting consumption and consequently GST collections. Karnataka today ranks first in per capita income, a fact that the government attributes partly to its welfare model. Another sore point is the 15th Finance Commission award. The state has calculated a cumulative loss of over Rs 90,000 crore over five years, and is talking about being denied a special grant of Rs 5,495 crore recommended by the commission. This imbalance is particularly glaring for a state that contributes nearly 8.7% to the national GDP.</p>.<p class="bodytext">In this context, the Centre must adopt a balanced approach. It cannot afford to punish high-performing states that are significant contributors to the national economy. Social justice is important, and poorer states must be supported. But this should not mean hard-working, performing states are penalised. Non-performing states, too, should be held accountable; they cannot forever lean on crutches provided by other states. Karnataka’s MPs, especially from the BJP, must shed their passivity and lobby actively to ensure that the state receives its fair share of funds and that any loss due to the new GST structure is adequately compensated. Protecting fiscal federalism is not just a state demand; it is a Constitutional duty the Centre must fulfil.</p>
