Exhorting that the constitutional liability lies with the Union Government, at least seven states and one Union Territory have rejected the Centre’s proposal to have state governments borrow to make up for the shortfall in Goods and Services Tax (GST) collection. At a meeting on Monday, six non-BJP ruled states — Punjab, West Bengal, Kerala, Delhi, Chhattisgarh and Telangana — called for an alternative mechanism to be worked out for compensating the GST revenue shortfall. Additionally, Congress-ruled Rajasthan and Puducherry expressed their support on the issue of compensation.
Kerala Finance Minister Thomas Isaac tweeted, “FMs of Punjab, Delhi, W Bengal, Chhattisgarh, Telangana and Kerala agreed to reject the Centre’s options on GST compensation. Our option: Central Govt to borrow entire compensation due regardless of acts of gods, humans or nature, to be paid back by extending the period of Cess.” He added that the state had no choice but to reject the Centre’s option “lock, stock and barrel”.
In a letter to Finance Minister Nirmala Sitharaman, Punjab’s Minister of Finance Manpreet Singh Badal noted that if states have to borrow, then the Centre would have to amend the compensation law that stipulates the central government to compensate states for loss in revenue arising out of GST implementation. Badal demanded full clarity on the options given by the Centre and sought an urgent meeting of the GST Council on the issue.
“Punjab is prepared to cooperate in a spirit of finding a solution to this vexed problem but is unable to persuade itself to either of the options presented at this stage,” Badal said, adding that the Centre’s method to calculate losses was “arbitrary, one-sided and devoid of any legal justification”.
The Centre and Opposition-ruled states are in conflict over the financing of GST shortfall amounting to Rs 2.35 lakh crore in the current fiscal. Of this, as per the Centre’s calculation, about Rs 97,000 crore is on account of GST implementation and the rest Rs 1.38 lakh crore is the impact of Covid-19 on states’ revenues. Last week, the Centre proposed two options to the states: to borrow either from a special window facilitated by the Reserve Bank of India or from the market. It also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022.
Chhattisgarh Chief Minister Bhupesh Baghel also wrote to Sitharaman saying the Centre should not pressurise states to take loans. The money to compensate them for the loss of tax revenues should be arranged by the central government. “While the GST compensation was to be paid bi-monthly, state government has not received Rs 2,828 crore compensation for the four months of current 2020-21 fiscal,” he wrote.
Speaking to The Indian Express, Chhattisgarh Finance Minister TS Singh Deo said, “These are compromises, if they are made, it’s better for there not to be a GST regime. We have a common rate of tax in the country but there must not be any such intermediary regimes. Let each state face it’s collection and meet its revenues from its own sources”.
Meanwhile, Bihar Deputy Chief Minister Sushil Modi was of the opinion that the Centre’s position is also stretched.
“There is no mechanism to compensate for their losses. It’s only the losses of the states that will be compensated and they (Centre) are also incurring heavy losses. You can’t force the Centre to borrow,” Modi told this newspaper.
Several states have also said that borrowings by the states may be costlier by up to 150 basis points, as compared to the borrowing by the Centre, Badal said.
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