Punjab Finance Minister Advocates for Robust Compensation Mechanism in GST Reform to Ensure Fiscal Stability

Punjab Finance Minister Harpal Singh Cheema has urged the central government to ensure states receive adequate compensation under the proposed Goods and Services Tax (GST) rate rationalisation. He believes this approach will safeguard states' financial stability and uphold fiscal autonomy, aligning with the cooperative federalism principles. Cheema stressed that the benefits should reach the poor, not just corporations, amid rising inflation.

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Cheema highlighted that without compensation for revenue losses, states could face financial instability, which would undermine the country's federal structure. This concern was shared during a meeting at Karnataka Bhawan with finance ministers from Karnataka, Himachal Pradesh, Jharkhand, West Bengal, Kerala, and Telangana. The consensus was that GST rate rationalisation must include a strong revenue protection framework.

GST Implementation Challenges

Since GST's introduction in July 2017, states have encountered significant revenue shortfalls despite the principle of revenue neutrality being central to its design. Cheema noted that Punjab has suffered a financial loss of approximately Rs 1.11 lakh crore. Although Rs 60,000 crore was received during the active compensation cess period, the central government has yet to address the remaining Rs 50,000 crore loss.

Cheema emphasised that states have advocated for an additional levy on sin and luxury goods to maintain effective taxation levels. These funds should be fully allocated to states to alleviate fiscal stress and preserve fiscal autonomy. He argued that without revenue stabilisation, states cannot fulfil their constitutional social welfare duties.

Fiscal Autonomy and Revenue Protection

The Punjab finance minister stressed that financially robust states are crucial for strengthening the nation. Therefore, protecting states' revenue interests is essential. Cheema stated that a robust mechanism is needed to achieve this goal and prevent shifting the financial burden onto states while retaining revenues at the Centre.

Addressing media queries about Punjab's flood situation, Cheema called for Union government assistance in this crisis. He assured that the Punjab government is actively supporting its people during these challenging times and plans to request a special package from the Centre after assessing the damage.

With inputs from PTI