Finance ministers from eight opposition-ruled states—Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal—met Wednesday to strategize ahead of the 56th GST Council meeting, demanding guaranteed compensation for revenue losses from the Centre’s proposed GST rate overhaul. The Centre’s plan to simplify the current four-tier GST structure (5, 12, 18, and 28 percent) into a two-slab system of 5 and 18 percent, with a 40 percent “sin tax” on luxury and demerit goods, has sparked concerns among these states about dwindling revenues.

Jharkhand Finance Minister Radha Krishna Kishore highlighted that his state could lose Rs 2,000 crore annually if the reforms are implemented without safeguards. “If the Centre compensates for our losses, we have no issue supporting the GST Council’s agenda. In a federal structure, it’s the Centre’s duty to protect states’ revenues,” Kishore told reporters post-meeting. The opposition states argue that slashing the 12 and 28 percent slabs could reduce their income, despite the Centre’s claim that lower prices will boost consumption and offset losses over time.

The GST Council, chaired by Union Finance Minister Nirmala Sitharaman and including state finance ministers, will meet over the next two days to discuss the “next-gen” reforms. The proposed changes aim to lower taxes on everyday items like ghee, nuts, drinking water, namkeen, certain footwear, apparel, medicines, and medical devices, shifting them from 12 percent to 5 percent. Common goods like pencils, bicycles, and hairpins are also expected to fall into the 5 percent slab, while electronics such as certain TVs, washing machines, and refrigerators may drop from 28 percent to 18 percent.

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Automobiles face differential rates: entry-level cars could be taxed at 18 percent, while SUVs and luxury vehicles may fall under the 40 percent sin tax, alongside tobacco, pan masala, and cigarettes. Opposition states, particularly West Bengal, have proposed an additional levy on demerit goods beyond the 40 percent rate, with proceeds exclusively shared among states to offset revenue shortfalls.

The current compensation cess, ranging from 1 to 290 percent on luxury and demerit goods, was extended until March 31, 2026, to repay loans taken by the Centre to compensate states for GST-related losses during the Covid period. With loan repayments nearing completion by November, the cess will end, prompting the GST Council to devise a new mechanism to maintain tax levels on demerit and luxury goods.

The opposition’s push for compensation reflects broader tensions in India’s federal fiscal framework, as states seek to balance consumer relief with financial stability. As the GST Council deliberates, the outcome will shape India’s tax landscape and its economic trajectory.

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