Centre Must Compensate States for GST Loss, Says Bhatti

Hyderabad: Deputy Chief Minister Mallu Bhatti Vikramarka on Friday said Telangana is estimated to lose nearly Rs 7,000 crore annually following the proposed Goods and Services Tax (GST) rate rationalisation. He urged the Centre to evolve a proper compensation mechanism to safeguard states from the adverse impact of the GST reform.

Speaking to the media in Delhi on Friday after a meeting with finance ministers of seven other states on GST rate rationalisation, Vikramarka said Telangana’s cumulative loss since the introduction of GST has already crossed Rs 80,000 crore.

“Had GST not been implemented, the state would have earned Rs 69,373 crore in 2024-25. But actual revenue stood at Rs 42,443 crore, resulting in a loss of Rs 27,000 crore this year alone,” he said.

Pointing out that the Centre had promised 14 per cent annual growth in states’ tax revenues at the time of GST rollout, the finance minister said the commitment had not been honoured as growth remains restricted to 7-8 per cent.

“Rate rationalisation is welcome, but if a state stands to lose Rs 7,000 to Rs 10,000 crore every year, its welfare and development programmes will suffer. We request the Centre to use the cess and tax collected on luxury and sin goods to compensate states,” Bhatti observed.

Finance ministers from Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal decided to raise the issue strongly in the GST Council meeting scheduled for September 3 and 4. Another round of discussions will take place at Tamil Nadu Bhavan ahead of the Council’s session, he added.

Highlighting the burden on Telangana, the Deputy Chief Minister said the state is newly formed and requires massive investments for growth. “Over 80 per cent of our revenues are tied to welfare schemes. GST accounts for just 39 per cent of our own tax revenue, so any reduction directly hurts us. Telangana is estimated to lose at least Rs 5,100 crore from rate rationalisation alone, with the overall impact nearing `7,000 crore, or about 15 per cent of GST revenue. Such a fall will weaken our financial stability,” he explained.

Bhatti stressed that Telangana’s GST-to-GSDP ratio had already declined from 3.07 per cent in 2022-23 to 2.58 per cent in 2024-25, and rationalisation would push it lower. He said the cess on luxury goods contributes only 15 per cent of the state’s GST revenue, leaving little cushion.

“States are losing fiscal freedom but not being given new mechanisms to raise resources. Cooperative federalism requires that the Centre hold consultations before imposing such sweeping changes,” he said.

Bhatti stated that Telangana supports GST rate rationalisation but insisted that the Centre must design a robust compensation framework to protect state finances and ensure welfare schemes and infrastructure projects are not derailed.