GST rate rationalisation is welcome, but States’ revenues must be protected: Karnataka Revenue Minister Byre Gowda

Reforms in the Goods and Services Tax (GST) regime with rate rate rationalisation is a welcome move, but State governments are concerned with the impact of the same on the revenues accruing to them, according to Karnataka Revenue Minister Krishna Byre Gowda.

Speaking to The Hindu, Mr. Gowda, who is also a member of the Group of Ministers (GoM) on rate rationalisation, said that the impact of the Centre’s proposals have to be carefully assessed. A major overhaul of GST was announced by Prime Minister Narendra Modi during his independence day address, with a flat two rate structure of 18% and 5% proposed by the Centre.

“We are for rate rationalisation. The rate impact of the same is on the revenues of the state are of great concern. Since the Central Govt has carried out these deliberations and developed proposals outside the GST consultation forum, we are not in the knowledge of the full proposals including measures to protect State revenues, if any. We are looking forward to understand and discuss,” he said.

While the Centre, he said, had various other revenue sources, i. e. Direct taxes, customs, dividends of monopoly PSUs, dividends from RBI, etc, the States have very limited sources.

“GST is the biggest source for the states. So, any major shock in GST will fundamentally affect the fiscal health of the states. So, we would like the rate rationalisation carried out along with protections for state revenues,” he added.

Mr. Gowda added that his government had raised the consequential impact of GST on State’s finances before the Finance Commission, but did not get much joy out of the response, which basically kept separate the GST and other financial issues.

“In my view, though, this is a structural issue. The GST, by moving from origin to destination principle, has fundamentally affected and altered long term revenue and fiscal trajectory of some states. Hence, it is a fiscal issue. Now, if the Finance Commission refuses to recognise this, then states like Karnataka and few others will get the wrong end of both worlds. GST council will only discuss GsT issues and will consider fiscal issues as extraneous and outside the mandate of the Council and hence not really to be debated in the Council. And, FC will refuse to discuss the fiscal impact of GST in state finances,” he said.

“With no redressal mechanism in the federal structure. I sincerely hope, for the sake of our federal unity, that these issues will be understood and adequately addressed. I hope these issues will not be brushed aside. Such a move will only harm the federal spirit,” he added.

A meeting of the GoM on rate rationalisation will be addressed by Union Finance Minister Nirmala Sitharaman on Wednesday (August 20, 2025).