Telangana Chief Minister A. Revanth Reddy has demanded that the Union government compensate the state for a projected annual revenue loss of approximately ₹7,000 crore caused by the recently implemented GST rate rationalisation. The demand comes amid growing concern over how revised tax rates will affect the state’s finances.
What’s Causing the Loss
- The decision to rationalise GST rates was taken by the GST Council, with certain goods moving into lower tax slabs. While this aims to benefit consumers, it also reduces the tax revenue that states collect.
- Telangana’s finance estimates show that the state had budgeted for revenues under the old structure; the rate cuts were not fully anticipated in those projections.
- Government officials say essential services like health, education, and welfare programs will be particularly hit by reduced GST receipts.
What Telangana Is Asking For
- CM Revanth Reddy has asked for a compensation mechanism from the Centre to make up for the revenue shortfall.
- He insists that, under the promise made when the original GST regime was introduced, the Centre should cover shortfalls when states’ GST revenues dip below certain thresholds.
- He has specifically requested that compensation cover the next five years, so the state can continue its development and welfare schemes without disruption.
Key Players & Responses
- Deputy Chief Minister and Finance Minister Mallu Bhatti Vikramarka has already submitted a formal memorandum to the Centre following the GST Council’s recommendations.
- Hyderabad MP Asaduddin Owaisi has supported the demand, arguing that states should not be punished for federal decisions that reduce their revenue base.
- There has been no official acknowledgement yet from the Union government about agreeing to this compensation demand.
Why It Matters
- ₹7,000 crore is a large gap that could affect core state functions. If not compensated, the state may need to reduce spending on public services or delay infrastructure work.
- States being left uncompensated could set precedents impacting federal relationships many states have expressed similar revenue shortfall concerns.
- The demand raises questions about how GST reforms balance consumer relief with maintaining state fiscal health.
