Karnataka: Economist suggests incorporation of slab beyond 28% for sin goods

With the GST compensation regime officially coming to an end by June, all eyes are set on the 47th GST Council meeting scheduled to be held in May. Sources close to the finance department have revealed that Karnataka would place the request for the extension of GST compensation period up to 2024-25.

Meanwhile, economists have suggested the incorporation of slabs beyond 28 per cent for sin goods (tobacco products, pan masala and aerated drinks). Presently, luxury and sin goods attract the highest tax. They attract cess on top of the highest 28 per cent slab and this cess is used to compensate the states for the revenue loss.

Economist and former director of the Institute of Social and Economic Change Prof RS Deshpande opined that items which affect health adversely should be put into the higher tax slab.

“Presently, Karnataka’s economy is not in a bad shape. However, it is necessary to build the revenue side of the state. It will also be required to get new revenue sources in order to boost the revenue to reduce deficits. Compensation Cess can be safely utilised in order to pay the debts. There is every justification for incorporating some of the important items like tobacco and tobacco products in the GST slab above 28 percent. Similarly, anything that affects the health or increases conspicuous consumption can get into the higher level slab,” Prof Deshpande suggested.


Finance Secretary Ekroop Caur told The Indian Express, “We get the compensation out of the cess amount that is collected. So in the last two years, the centre has paid the compensation as per the formula and in addition they have raised the loan and given the compensation. So we have got the compensation. There is some shortfall, which they will make good over the coming years”.

Matters relating to the merging of GST slabs (5, 12, 18 and 28 per cent) are expected to be taken up at the council.

Additional Chief Secretary of the Finance Department ISN Prasad was not available for comments.

Karnataka Chief Minister Basavaraj Bommai, who presented his maiden budget 2022-2023 of Rs 2,65,720 crore in the month of March, had not factored in the GST compensation. He had then stated that the estimated revenue deficit of Rs 14,699 crore in 2022-23 can be reduced if the Centre agreed to Karnataka’s request of extending the compensation beyond 2022 in the view of the losses incurred during pandemic. Karnataka used to get a GST compensation of Rs 11,000 crore to Rs 14,000 crore.

Source:::THE INDIAN EXPRESS,  dated 26/04/2022.