HYDERABAD: Stating that Telangana’s revenue fell short by Rs 26,930 crore in 2024–25 due to the Goods and Services Tax (GST), Deputy Chief Minister Mallu Bhatti Vikramarka on Friday expressed apprehension that the state may suffer an additional loss of Rs 7,000 crore if the proposed rationalisation of GST rates is implemented.
Vikramarka raised 15 key points during the consultative meeting of various states on “GST Rate Rationalisation” held at Karnataka Bhavan in Delhi, under the aegis of the government of Karnataka.
“Had Telangana continued with VAT with fiscal freedom, revenues in 2024–25 would have been Rs 69,373 crore. Under the GST regime, the state’s revenues stood at just Rs 42,443 crore. GST accounts for just 39% of Telangana’s own tax revenues. Therefore, any reduction in GST rates impacts the state’s revenues far more severely than Central revenues,” he said.
He also expressed the fear that the proposed rationalisation of GST rates might further reduce the revenues of the state.
“Telangana is estimated to lose at least Rs 5,100 crore due to the proposed rate rationalisation. Adding other losses, the impact will be nearly Rs 7,000 crore, which will be around 15% of GST revenues. This will severely affect the state’s overall financial condition. More than 80% of Telangana’s revenues are committed to welfare expenditure,” he said.
The deputy CM, however, supported the rationalisation of GST rates. “Telangana supports rate rationalisation, but two critical issues must be addressed,” he said and added that a proper compensation mechanism should be designed to protect states’ revenues, enabling them to continue welfare, development, and infrastructure programmes.
‘GST-to-GSDP ratio steadily declining’
Vikramarka, who also holds finance portfolio, said that Telangana’s GST-to-GSDP ratio had been steadily declining, from 3.07% in 2022–23 to 2.58% in 2024–25. Rate rationalisation would reduce it further, he added.
“We are all prepared to support the Centre’s proposal for GST rate rationalisation. However, there are serious concerns about the losses that could adversely impact welfare schemes.
In a multi-party parliamentary democracy, every state is important. In the spirit of cooperative federalism, the Centre should have consulted states either directly or through the Council. Unfortunately, the announcement on rate rationalisation was unilateral,” he said.
The deputy chief minister also said that Telangana was “a newly formed state with high financial requirements and aspirations”.
Funds are essential to build and develop the state, he said and added that a fair tax system would aid its progress.
“At the time of GST implementation, it was assured that any revenue shortfall for states would be compensated. It was estimated that revenues under GST would grow significantly within five years, thus allowing cessation of the compensation cess. Telangana has achieved only 10% compound annual growth rate (CAGR) in GST revenues up to 2024–25, whereas VAT earlier had 18% CAGR,” he explained.
Vikramarka said that the share of cess on luxury goods for Telangana constitutes only 15% of its GST revenues.
‘Fiscal burden will become extremely heavy’
He said that when states lack freedom to levy taxes, and no mechanisms were introduced to generate additional revenues, the fiscal burden becomes extremely heavy.
“Any tax reduction or exemption must genuinely benefit the poor and middle-class sections of society,” he added.
Karnataka Revenue Minister Krishna Byre Gowda, Punjab Finance Minister Harpal Singh Cheema, Kerala Finance Minister KN Balagopal, Jharkhand Finance Minister Radha Krishna Kishore, Tamil Nadu Finance Minister Thangam Thennarasu, Minister for Technical Education, Himachal Pradesh Rajesh Dharmani and Resident Commissioner of West Bengal Ujjayini Datta were present at the meeting.
Later speaking to the media, Vikramarka said that the Group of Ministers decided to hold another breakfast meeting on the same issue at
Tamil Nadu Bhavan on September 3. He said that key points would be discussed there as well, and later they would be presented to the Union government.
“These concerns will be raised in the upcoming GST Council meeting. Many states are facing financial losses, including NDA-ruled states. Therefore, we urge the Centre to reconsider the GST rationalisation proposal and take an appropriate decision,” he added.