State for release of GST compensation and IGST dues

Harish Rao participates in GST council meeting chaired by Union Finance Minister Nirmala Sitaraman through video conference

Finance Minister T. Harish Rao has demanded that the Central government take steps to release the State’s share of GST compensation of ₹ 5,420 crore and IGST dues amounting to ₹ 2,700 crore with immediate effect.

He recalled that the States agreed to join the GST regime after the Central government’s assurance that they would not suffer any losses on account of the new tax regime. It is therefore the responsibility of the Centre to pay GST compensation to the States, he said.

Mr. Rao was participating in the GST council meeting chaired by Union Finance Minister Nirmala Sitaraman through video conference on Thursday.

The Minister was accompanied by Chief Secretary Somesh Kumar and senior officials during the video conference. He said States lost around 60% to 70% of their revenues by joining the GST regime while the Centre is losing 31%. In view of this, it is incumbent on the Centre to compensate the States, he said.

The Centre had assured to compensate the States in the event of their incurring losses during the previous meetings of the GST council mobilising money either from the Consolidated Fund or through raising loans. The Centre is crediting the balance of cess into the Consolidated Fund and is leaving the States to fend for themselves when the quantum of cess is lower, he said.

Given the procedural aspects like interest rates, tenure of the loan, FRBM limits and others involved in the loans mobilised by the States, the Centre should take the initiative to raise loans for releasing GST compensation to the States. This would, in turn, reduce the interest burden on the loans too, Mr. Rao said.

He expressed concern over the uncertainty in the fiscal front on account of COVID-19 because of which States are unable to calculate their revenue deficit and assess other related aspects. In view of this, the Centre should take the responsibility in paying GST compensation to the States once in two months as assured in the past.

Steps should be taken to release ₹ 2,700 crore to Telangana towards IGST dues and the committee headed by Bihar Deputy Chief Minister Sushil Modi should meet soon to finalise operational guidelines in this direction. He recalled that Telangana was among the top five States in payment of GST cess while it was ranked among the lowest in terms of compensation. The State had so far contributed ₹18,082 crore towards the cess while it was given back ₹3,223 crore, he said.

The Centre, according to an official release, calculated that the compensation required by the States in the current financial year would be ₹ 3 lakh crore of which, ₹ 65,000 crore was expected to be met from the cess levied in the GST regime, taking the total estimated shortfall to ₹ 2.35 lakh crore.

Of this, ₹ 97,000 crore was on account of GST shortfall while the rest due to the impact of COVID-19 on the economy. Accordingly, a special window could be provided to the States in consultation with the RBI at a reasonable interest rate for borrowing ₹97,000 crore. The amount could be repaid after five years (of GST implementation) ending 2022. The other option before the States is to borrow the entire ₹ 2.35 lakh crore under the special window.

The Centre had given a week’s time to the States to think over the proposal.

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