Tamil Nadu Finance Minister Thangam Thennarasu has stressed the need for the Union Government to safeguard the fiscal autonomy and revenue stability of States while rationalising the Goods and Services Tax (GST) structure.
Balancing Reform with Fiscal Federalism
The Centre is exploring options to rationalise GST rates to simplify the indirect tax system and boost compliance. However, Minister Thennarasu cautioned that such reforms should not come at the expense of States’ revenue receipts, which form the backbone of their social welfare and developmental programmes.
Concerns Over Revenue Dependence
Since the implementation of GST in 2017, States have relied heavily on assured compensation to offset losses from subsuming local taxes such as VAT, entry tax, and entertainment tax. With the compensation period having ended in June 2022, States like Tamil Nadu remain concerned about their revenue stability amidst inflationary pressures and rising expenditure obligations.
The Need for Cooperative Federalism
The Finance Minister highlighted that GST is a shared responsibility between the Centre and States, and any rationalisation must be undertaken in true spirit of cooperative federalism. Protecting States’ revenue share is essential to ensure uninterrupted funding for welfare schemes, infrastructure development, and employment generation initiatives.
Tamil Nadu’s Stand
Tamil Nadu has consistently called for:
- Safeguarding States’ Fiscal Space – Any GST restructuring must guarantee revenue neutrality for States.
- Transparent Consultations – States should be actively involved in decision-making at the GST Council.
- Compensation Mechanisms – Adequate safeguards should be in place to prevent revenue shortfalls.
Looking Ahead
As discussions around GST rationalisation gain momentum, the demand from States like Tamil Nadu underscores the importance of striking a balance between tax simplification and protecting federal fiscal rights. Ensuring stable revenue receipts will not only strengthen State finances but also sustain India’s inclusive growth model.
