Chandigarh, Sept. 5 -- Punjab is likely to see a decline of at least 20% in its goods and services tax (GST) collections following the rate rationalisation approved by the GST Council in the consumption tax on Wednesday, according to official estimates. A top government functionary said that Punjab would be among the states most affected by the changes in GST rates, given its heavy reliance on the indirect tax for tax revenue. GST has been the single largest contributor to the debt-ridden state's own tax collections year after year. Of the own tax revenue of Rs.63,250 crore projected in the 2025-26 budget estimates, the state expected to garner Rs.27,650 crore (about 44%) from the goods and services tax. During the 2024-25 financial year, GST accounted for 43.50% of the state's own tax revenue as per revised estimates. "The revised GST rates on most goods and services will significantly impact state revenue. While the 20% figure is only an initial estimate, the actual shortfall could be higher if the buoyancy effect and improved compliance anticipated by the central government from rate rationalisation do not materialise. We may now have to revise our revenue projections and plans," the government functionary said. The overhaul of the indirect tax regime - shifting to a two-slab structure from September 22, was announced by Union finance minister Nirmala Sitharaman after the 56th meeting of the GST Council in New Delhi on Wednesday. The Union finance ministry has estimated the net fiscal implication at Rs.48,000 crore, but expects the boost in consumption and better compliance to offset the impact over time. Confirming the estimated likely revenue shortfall due to rate cuts, Punjab finance minister Harpal Singh Cheema welcomed the reduction in GST rates as a relief for consumers, but emphasised that the central government must compensate the states for the resulting revenue loss. "When GST was introduced in 2017, all states supported it on the condition that the Centre would compensate them for any revenue loss until their economies stabilised. The economies of the states are still not stable, and the latest rate cuts will have a further impact on them," said the minister, who attended Wednesday's GST Council meeting. Cheema said that he had urged the council and the Centre to extend the GST compensation cess for another five years or find some other alternative mechanism to continue providing compensation to the state for the loss till Punjab attains fiscal stability, but the request was not accepted. With a debt-gross state domestic product (GSDP) ratio of 46%, Punjab is among the most indebted states in the country. This revenue loss is expected to add to fiscal stress, as the state is saddled with huge committed liabilities, unsustainable subsidies, and a spiralling revenue deficit. The state government may find it tough to make up the revenue loss, as the state GST collections have dropped from 3.71% of GSDP in 2015-16 to 2.81% in 2023-24 - a decline of 90 basis points. Before the council meeting, seven non-NDA states, including Punjab, held a meeting in Delhi last week and demanded a five-year revenue protection guarantee with 2024-25 as the base year to compensate the states for revenue losses. Under the GST regime, rolled out on July 1, 2017, states were guaranteed a growth of 14% annually, starting with 2015-16 as the base year, for five years in lieu of taxes subsumed in GST and to ease the transition. To meet these shortfalls, the Centre had levied compensation cess on luxury and sin goods. While compensation payments to states ended in June 2022, the council extended the cess till March 31, 2026, to cover the principal amount and interest on loans taken in 2020 and 2021 fiscal years to compensate states during the Covid-19 pandemic. Punjab was among the largest beneficiaries of compensation released to states for shortfalls in their protected revenues. According to official claims, as agriculture contributes 25-30% of the state's GSDP, the shift to GST had caused an estimated revenue loss of Rs.4,000 crore annually in Punjab, largely due to the subsumption of taxes like purchase tax on grains....