In all the hoopla about GST, the four-letter word which is slitting the throat of federalism is CESS. Funds collected as cess go 100% to the Union government. Not a rupee is shared with the State governments. Consider this:
i. In 2012, cess formed 7% of the Union government’s total tax revenues. In 2025, cess is estimated to be about 20% of the Union government’s total tax revenues.
ii. Rs 5.7 lakh crore of cess and surcharge has been lying unutilised since 2019.
iii. 22 states, including many ruled by the BJP, had protested against the shrinking divisible pool. These states asked the 16th Finance Commission for a larger share of tax collections – currently 41%, to be raised to 50%.
iv. As per RBI, the divisible pool has shrunk from 89% of gross tax revenue in 2011 to 79% in 2021. This, despite the 10% increase in tax devolution to states as recommended by the 14th Finance Commission.
v. Between 2015 and 2024, cess (in operation) has increased by 462% (over Rs 2 lakh crore).
Dr Amit Mitra, economist, former Chairman of the Empowered Committee of State Finance Ministers on GST, and Principal Chief Advisor to the Chief Minister of West Bengal, makes three important points on GST rationalisation.
First, he says that GST rationalisation is a good step, provided the common people get the benefit. There was an anti-profiteering committee that ensured the lower GST would be passed on to the consumers. That committee has been discontinued.
Second, there also remains the question of how states will be compensated. Eleven ministers in the GST Council had asked for compensation, their voices were muffled.
Third, the Revenue Secretary said in the press conference that revenue loss will be Rs 48,000 crore. But he didn’t take into account the supply chain. It will, easily, be over rupees one lakh crore.
Postscript: The Parliamentary Select Committee, of which this writer was a member, in its 2015 report on the GST Bill, had recommended that GST should not exceed 18%, and multiplicity of taxes should be avoided. (Now, done. Better late than never.)
Derek O’Brien, Parliamentary Party Leader (Rajya Sabha), AITC.