States May Lose ₹1.5 Lakh Crore Under GST 2.0, Warns Karnataka Minister

Karnataka Revenue Minister Krishna Byre Gowda has expressed serious concerns over the new GST 2.0 structure, which came into effect on Monday. Speaking to NDTV, the minister said that while the state government supports tax rationalisation and rate reduction, the current framework may lead to a revenue loss of ₹1–1.5 lakh crore for states.

“Centre Shifting Burden to States”

Mr. Gowda argued that the Centre has shifted the entire burden of the rate reduction onto the states, undermining fiscal stability.

“We were supportive of rate rationalisation. The problem is the Centre placing the entire burden of this rate cut on states. States are set to lose between ₹1–1.5 lakh crore. This strikes at the very core of their fiscal stability,” he said.

He further claimed that while states are likely to lose, the Centre could gain an additional ₹50,000–₹60,000 crore, making the tax reforms one-sided.

Federalism at Risk

Highlighting the imbalance, the minister said the new structure hurts the principle of cooperative federalism.

“This is not cooperative federalism, but one-way federalism. States will be left dependent on the Centre,” he warned.

Demand for Revenue Protection

Mr. Gowda clarified that states were not asking for extra funds from the Centre but suggested that the government use the existing cesses—now subsumed as central taxes—to compensate for state losses.

“We only asked that the cesses continue and the revenue be shared with states. This would not have placed any additional burden on the Centre,” he added.

According to him, the Centre was “dismissive” of these concerns and offered no assurance of revenue protection.

GST 2.0: The New Tax Framework

The GST 2.0 reforms are the most significant overhaul since the tax was introduced in 2017. The earlier four-tier structure of 5%, 12%, 18%, and 28% has now been replaced with two main slabs: 5% and 18%.

Cheaper under GST 2.0: Essential goods, food items, health and life insurance, automobiles, electronics, appliances, transport, stationery, beauty and lifestyle services, and machinery.

Luxury taxation: Ultra-luxury items will be taxed at 40%.

Tobacco & related products: Remain under the 28% slab plus cess.

The Centre claims the reforms will simplify taxation and boost consumption, but states fear the lack of revenue protection will worsen fiscal pressures.