"States Need To Be Compensated For Revenue Losses": P Chidambaram On GST Move

P Chidambaram -- Congress's former Union Minister who handled the finance portfolio -- said today that while the rationalisation of the Goods and Services Tax law is welcome, it is eight years too late. Over these last years, it has taken a toll on the economy and the people, and the government has realized it now, he said. He also said the states need to be compensated for the loss in revenue and he ws confident that the government would address the issue.

The rationalization of GST, announced yesterday by the GST Council, pared down the four existing tax slabs to two - 5 per cent and 18 per cent. Taxes on multiple items -- including food, medicines, essential items, farm goods, green energy, small cars and bikes - have been slashed down to the lowest category. Crucial items including life and medical insurance, life-saving drugs and food items including dairy products and bread have been made tax free.Scoffing at the government billing the rationalization as a Diwali gift, he said, "It is not a Diwali gift... It is a blow to industry, to the consumers, especially to the MSMEs. They have realised that they have dealt a severe blow. They are repenting for the blow".

In an exclusive interview to NDTV, Mr Chidambaram said, "I have said it should be a good and simple tax. Finally, finally, wisdom has dawned on the government and they have moved towards rationalisation. I entirely welcome the announcement, but I must point out it is eight years too late".

The lateness of the revision is something he had pointed out in  a social media message as well, which speculated on the need for this rationalisation being felt now. 

"We have been crying hoarse for the last 8 years against the design and rates of GST, but our pleas fell on deaf years." the post read.  "It will be interesting to speculate on what drove the government to make the changes: Sluggish growth? Rising household debt? Falling household savings? Elections in Bihar?Mr Trump and his tariffs? All of the above?" it added. 

The streamlining of the taxes, Mr Chidambaram told NDTV, "would not address all the issues, but it will help address some of these issues". "For example, consumption is low and consumption will be boosted," he said. 

"There's another grave thing that many of you have forgotten that thanks to Covid and thanks to the GST mechanism-- several lakh MSMEs have closed down. So it is possible that if the government addresses that issue of closed down MSMEs, some of them will revive," he said, pointing out that the closure of MSMEs directly contributed to job loss," he pointed out. 

The Congress leader also said the states would need to be compensated and he expected the government to take action on that front. "I'm sure the government of India and the finance ministry will address the alleged loss of revenue and devices suitable compensation mechanism," Mr Chidambaram said.

"Whether the compensation mechanism is satisfactory or not is a separate question. But I'm absolutely sure that a government, a wise government, which has taken the step will address the issue of a possible loss of revenue for the states," he added.  

The government is expecting the revenue implication of the rationalisation to be around Rs 48,000 crore. Officials said it would not be correct to term it a loss, since the extra money in people's hand would eventually be routed back into the economy.