GST shortfall: 7 states, 1 UT including Kerala reject Centre's proposal of borrowing

Thomas Isaac, Nirmala Sitharaman
Thomas Isaac, Nirmala Sitharaman

New Delhi: The Centre's suggestion of states borrowing to make up for the GST shortfall has been outrightly rejected by many non-BJP ruled states.

As many as seven non-BJP ruled states, including Kerala and Punjab, besides Union Territory Puducherry on Monday rejected the Centre's proposal, saying the constitutional liability lies with the Union government.

At an informal meeting on Monday, six non-BJP ruled states -- Punjab, West Bengal, Kerala, Delhi, Chhattisgarh and Telangana -- felt that an alternative mechanism should be worked out to compensate the GST revenue shortfall.

Besides, Congress-ruled Rajasthan and Puducherry too said they will follow suit on the issue of compensation.

Kerala will reject "lock, stock and barrel" the Centre's proposal of borrowing by states to meet GST revenue shortfall, state finance minister Thomas Isaac said on Monday.

The Centre and opposition-ruled states like Punjab, Kerala, Delhi and West Bengal, are at loggerheads over the financing of the Rs 2.35 lakh crore Goods and Services Tax (GST) shortfall in the current fiscal. Of this, about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is the impact of COVID on states' revenues.

The Centre last week gave two options to the states to borrow either from a special window facilitated by the RBI or from market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022.

"Now that we fully understand Centre's intentions on GST Compensation we have no choice other than to reject them lock, stock and barrel. No state with Aatmanirbhar can accept them. Enough is enough. No more surrender of states rights. GST Compensation is our constitutional right," Isaac tweeted.

At the GST Council meeting on August 27 on compensation, Finance Minister Nirmala Sitharaman had said that COVID-19 is an 'Act of God' and it was necessary to differentiate between GST shortfall and the pandemic-related shortfall.

"We all got it wrong regarding Centre's proposal on GST deadlock. This itself is sad commentary on proceedings of Council. We discuss for 5 hours and then the Chair comes up with proposals which are totally disconnected with discussions and no time left for any clarification," Isaac tweeted.

"FMs of Punjab, Delhi, W Bengal, Chhattisgarh, Telengana 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," Kerala Finance Minister Thomas Isaac said.

Punjab Finance Minister Manpreet Singh Badal said if states have to borrow, then the Centre will have to amend compensation law which says that the central government will compensate states for loss of revenue arising out of implementation of the Goods and Services Tax (GST).

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.

Speaking to reporters in Hyderabad, Telangana Finance Minister T Harish Raosaid: "Unfortunately the Centre is trying to shy away from paying ... GST compensation to states in the name of act of god and coronavirus. It is not fair on (the) Centre's part to tell states to borrow (for GST losses). It was loud and clear that as per the GST Act, the Centre will compensate if the states' tax revenues growth is less than 14 per cent".

While the Centre has reasoned its proposal on premise that it is already saddled with a large borrowing requirement given the slowdown in revenue collections due to a slump in the economy, non-BJP ruled states such as Punjab, Kerala, Delhi and West Bengal have already stated that raising debt is not an option for already stretched state finances.

During April-July of current fiscal, the total compensation requirement of states stand at Rs 1.50 lakh crore. Total GST collection during April-July was Rs 2,72,642 crore, which is 65 per cent of what was collected in same period last year.

The payment of GST compensation to states became an issue after revenues from the imposition of cess started dwindling since August 2019. The Centre had to dive into the excess cess amount collected during 2017-18 and 2018-19.

The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during 2019-20 was Rs 95,444 crore. The balance Rs 69,556 crore was paid from the excess cess collected in 2017-18 and 2018-19.

The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.

(With PTI inputs.)

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