MC Exclusive: Centre encroaching on state list through GST regime, says Chhattisgarh Deputy CM TS Singh Deo

TS Singh Deo said that nobody has any issue with having common rates throughout the country, but taking states’ revenue source is completely unfair.

Chhattisgarh, being a producing state, is bearing a loss under the GST regime from its natural resources, incurring a loss of Rs 3,000 crore per annum on coal alone, as the Centre has been encroaching on the revenue of state list items via the indirect tax regime, said deputy chief minister TS Singh Deo.

He added that energy and liquor should never become part of the GST regime as they are revenue sources for the states.

“We are deprived of our rightful revenue to the natural resources found here. Why should a consuming state get the benefit of our coal reserves? The state suffers pollution due to coal mining. Centre is encroaching upon state list items through the GST regime, which is not fair. Coal reserves are a state's resource, so why should the Centre take any share of it. In the federal structure, the Centre should not have the right to do so when the items in state and Centre and concurrent list are delineated,” Singh Deo told Moneycontrol.

India marked six years of implementation of the Goods and Services Tax (GST) on July 1. Under the GST regime, the states and Centre have agreed to pool their tax resources. Since GST is a consumption based tax, tax is collected in the state where the goods or services are consumed and not in the state where they are produced.

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“Why should a consuming state get the benefit of our coal reserves? We get pollution, deforestation, lose the land, lose water and we lose revenue as well. It’s a lose-lose thing for us. The state consuming is taking the benefit of IGST and SGST,” he said.

Singh Deo said that nobody has any issue with having common rates throughout the country, but taking states’ revenue source is completely unfair.

“On coal alone, VAT was earlier at 5 percent and GST also is at 5 percent, but 2.5 percent of the tax goes to the Centre. After devolution of taxes, the state gets 3.5%, while earlier we were getting the entire 5 percent. The state is losing 1.5 percent of revenue on coal, which amounts to Rs 2,500-3,000 crore loss per annum and that is only on one item,” he said.

Many items such as petrol, diesel, alcohol, electricity still remain out of the purview of GST, which only once approved by the Council can be a part of it.

“Energy, alcohol should not come under GST, the Centre will take our revenue source. Why should the Centre take any share of the tax on states’ resources?” he said.

With the five-year GST compensation period to states coming to an end on June 30, 2022, states face a revenue crunch.

“The end of GST compensation is a straight loss for producing states. Chhattisgarh was carved out because the area was mineral rich. But the people are not getting the benefit of natural resources under GST as it is consumer based. For the next five years, the loss due to no compensation is estimated at Rs 30,000-35,000 crore. We will be growing slower because of loss of GST compensation revenue,” he said.

Chhattisgarh recorded revenue growth of 19.68 percent in 2022-23, slower than the 21.56 percent in 2021-22. But it is only in recent years that revenue growth in the state has been picking up, since GST was implemented. The revenue growth in the state pre-GST, in 2016-17, stood at 13.23 percent and fell to 0.16 percent in the first year of GST implementation. In 2018-19 it increased to 9.04 percent but fell drastically to -3.87 percent in 2019-20 and improved to 3.12 percent in 2020-21.

“Increase in revenue is an annual feature, but we are losing what we should be getting. We are deprived of our rightful revenue to the natural resources found here. An increase in revenue does not reflect the true loss that we are suffering,” Deo said.

Under the GST regime, revenue is shared between the Centre and state governments in a 50:50 ratio for goods and services. The Chhattisgarh deputy chief minister said that as part of GST reforms, the tax share of states should be more than 50% as the Centre gets a lot of revenue via cesses on petrol, etc. which it does not share with states.

“Cesses are additional sources of revenue which are not transferred to states either through devolution through the Finance Commission or through GST. The answer is to increase the share of states from their natural pool. Instead of 50:50 GST Centre-state share, it should be made 20:80 or 30:70,” he said.

According to a reply by finance minister Nirmala Sitharaman in the Rajya Sabha in December 2022, the share of central cesses and surcharges has surged from 18.2 percent of gross tax revenue in 2019-20 to 25.1 percent of gross tax revenue in 2020-21.

“There is no dispute on the common rate slab throughout the country. Obviously there should be one tax rate throughout the country. But the right to taxation should lie with the state at a rate fixed through the GST Council. Under GST, the states get 50 percent and 50 percent goes to the Centre. After the tax devolution as per the Finance Commission, the states are getting a total of 71% of GST revenue and the Centre is taking 29 percent of GST. Pre-GST, the Centre’s share was far lower than what they are taking today. State governments have lost the right to tax,” said Singh Deo.

On GST rate rationalisation reforms, he said any rate increase would not be viable and fair.

“The way forward is to reduce GST rates and increase surveillance, which will reduce tax evasion to zero. GST on items should be reduced, and more items should be put in the zero slab, or more items should be moved from the 12% slab to 5%. Rationalisation of rates is needed,” he said.

In Chhattisgarh, 90 percent of taxpayers are in the low income bracket and contribute 10% of the revenue of the state. So, the GST rates on items used by the common man should be reduced further while they should be increased for goods consumed by the remaining 10 percent of the population, who contribute 90 percent of the revenue, he added.