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Wednesday, January 26, 2022

In meet with FM, states push for GST compensation extension by 5 years

Under GST, states were guaranteed compensation at the compounded rate of 14 per cent from the base year 2015-16 for losses arising due to implementation of the taxation regime for five years since its rollout. The compensation regime will end in June.

By: ENS Economic Bureau | New Delhi |
Updated: December 31, 2021 7:45:50 am
Finance Minister Nirmala Sitharaman at the pre-Budget meet with state finance ministers in New Delhi, Thursday. (PTI)

With the Covid pandemic impacting states’ revenues, they have urged the Central government to consider increasing its share in Centrally-sponsored schemes and an extension of compensation for another five years under the Goods and Services Tax (GST) regime. In their pre-Budget meeting with Union Finance Minister Nirmala Sitharaman on Thursday, some states urged the Centre to look into direct cash transfers for supporting economic recovery.

Rajasthan Education Minister Subhash Garg said extension of compensation cess window under GST till 2026-27 is a valid demand of states and the Centre should consider it. “Our most significant demand is that the Centre’s share in Centrally-sponsored schemes has gradually reduced and states’ share has increased. Earlier share would be 90-10 and now it is 50-50 or 60-40, our request is that it should go back to 90-10,” Garg said.

Under GST, states were guaranteed compensation at the compounded rate of 14 per cent from the base year 2015-16 for losses arising due to implementation of the taxation regime for five years since its rollout. The compensation regime will end in June.

There has been a loss of revenue to states due to the GST system, the Centre has not made arrangements to compensate the loss of revenue of about Rs 5,000 crore to the state in the coming year, so the GST compensation grant should be continued for the next five years after June 2022, Chhattisgarh Chief Minister Bhupesh Baghel said. “Many states have asked for this. We have also asked to extend GST compensation. If it is not extended, the finances of many states will be in a bad shape,” Delhi Deputy Chief Minister Manish Sisodia said.

Explained

Revenue hit amid Covid

States were guaranteed compensation at the compounded rate of 14 per cent from the base year 2015-16 for losses arising due to GST implementation for five years since its rollout, which will end in June. States are concerned as their revenues have taken a hit amid Covid.

The Finance Minister and state ministers will meet on Friday as well at the 46th meeting of the GST Council, where the issue of the proposed hike in GST rate on textiles to 12 per cent from 5 per cent, effective January 1, will be taken up. West Bengal Urban Development and Municipal Affairs Minister Chandrima Bhattacharya asked the Centre to consider extending GST compensation, along with a demand for direct cash transfers.

“We have asked that money should be given directly to the hands of the people as DBT so that the economy can be revived. When India’s growth was negative by implementing DBT, Bengal had a positive growth. Because of Covid situation, states had to take a huge financial burden. The centre has to compensate for that through the Union Budget. The next issue is the centrally sponsored scheme and its share. There were many schemes which were 100% government. Now it is 60-40 (ratio), 50-50 and in some schemes 75-25 has been turned into 25-75 so this should be corrected,” she said.

Rajasthan made a representation for reduction in import duty on gold and silver from 10 per cent to 4 per cent. Rajasthan also requested that all irrigation and water work projects should be brought under the Centre’s ambit and declared central schemes.

Tamil Nadu Finance Minister P Thiaga Rajan said this opportunity should be used to correct some of the anomalies such as reduction in state’s right to determine their own taxation. He also demanded extension of GST compensation cess regime for at least 2 years because of Covid, along with making a case for raising the share of the Union government in Centrally-sponsored schemes.

Some states also raised the issue of putting the proposed rate hike on textiles effective January 1 on hold for now, an issue which is also to be discussed in the GST Council meeting.

The Finance Ministry in its statement said it has assured the states of examining the proposals made by them. “Most of the participants thanked the Union Finance Minister for financially supporting their States/Union Territories during the worst months of pandemic, by enhancing borrowing limits, providing back to back loans to States, and through Specsvial assistance for capital expenditure. The participants also gave numerous suggestions to the Union Finance Minister for inclusion in the Budget Speech. The Finance Minister thanked the participants for their inputs and suggestions towards Union Budget 2022-23 and assured to examine each of the proposals,” it said.

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