Updated: September 2, 2020 10:17:32 am
The states ruled by the Center and the Opposition are in conflict over the financing of the GST deficit of Rs 2.35 million lakh in the current fiscal year. (File photo)
REJECTING the Center’s proposal that state governments could borrow to cover the compensation deficit under the Goods and Services Tax (GST) regime, at least four non-BJP states have said the loan should be made by center.
While Telangana Chief Minister K Chandrashekar Rao, Delhi Chief Minister Arvind Kerjiwal, and Tamil Nadu Chief Minister Edappadi K Palaniswami have written to Prime Minister Narendra Modi, Chhattisgarh Chief Minister Bhupesh Baghel, has written to the Minister of Finance, Nirmala Sitharaman.
Two days after the GST Council meeting last week, the Center had detailed two loan options proposed to the states to cover the compensation deficit of Rs 2.35 lakh crore.
Speaking to The Indian Express, Minister of Finance of Kerala Thomas Isaac said that states not only reject the Center’s proposal, but propose a third option. – that the central government borrows the full compensation and the states agree to extend the tax for a period long enough to recover this amount.
Read | The Center’s Option to Allow States to Borrow a Burden: Arvind Kejriwal to Prime Minister Modi
“Central borrowing is very simple, you can borrow directly from the markets… but if you fear that interest rates will rise and so on, monetize the debt. Simple. That is what all the countries are doing, ”he said.
A legal recourse to challenge the two options is also on the table, although several state finance ministers said that would be the last resort. A vote on the issue may come up at the next GST Council meeting, which is scheduled for September 19.
Isaac said that the GST compensation law provides for the calculation of compensation loss and there is no distinction because of Covid, so the distinction the Center makes is “illegal” and can be challenged in court.
“Make sure we are not giving up on this issue. This is a constitutional right, they cannot take away the rights of the states, ”he said.
At least eight non-BJP states and Union territories (Punjab, West Bengal, Kerala, Delhi, Chhattisgarh, Telangana, Rajasthan, Puducherry) rejected the Center’s proposal in a meeting on Monday.
In his letter to Modi, Rao has said that states are facing increased spending due to the pandemic and a revenue shortfall due to “no large buoyant taxes of their own” after the implementation of the GST. On the other hand, he said, the Center is still left with buoyant sources such as income tax, corporation tax and customs duties.
Read | From farm ordinances to GST, Punjab is square to Center on multiple issues
“The argument that the additional loans from the Center influence the returns on central government securities and have other macroeconomic repercussions is not very convincing. The loans from the Center and from the states come from the same financial system and group of investors and their impact on the macroeconomic situation is not very different. State loans will also boost the performance of government securities, ”Rao said.
Kejriwal has urged the Center to consider more legally viable and sustainable options, adding that the GST Council should consider authorizing the Center to borrow on its behalf and extending the tax collection period from 2022.
Palaniswami said in his letter that both options require states to borrow, which is “administratively difficult to implement and more expensive.” “Whether the government of India borrows or the state governments, for the rating agencies and others that monitor macroeconomic indicators, what is relevant is the overall general government deficit. The argument that states borrow for what is essentially an obligation of the Government of India is an apparently better optical arrangement does not appear to be a strong or valid reason, “he said.
The states ruled by the Center and the Opposition are in conflict over the financing of the GST deficit of Rs 2.35 million lakh in the current fiscal year. Of this, according to the Center’s calculation, around Rs 97,000 crore is due to the implementation of GST and the remainder is the impact of Covid-19 on state revenues.
The Center had proposed two options to the states: borrowing Rs 97,000 crore from either a special window provided by the Reserve Bank of India or the total amount of Rs 2.35 lakh crore from the market. He also proposed extending the compensation rate imposed on luxury, demerit, and sin goods beyond 2022.
GST revenue data for August (for July sales), released on Tuesday, showed a 12 percent year-on-year decline to Rs 86.449 crore. To put this number in perspective, the states’ protected monthly income under the 14 percent guaranteed compensation rate is Rs 63,800 crore.
Under the GST (Compensation to States) Act 2017, states are guaranteed compensation for loss of revenue due to the implementation of GST during a transition period of five years (2017-22). GST compensation payments for states have been outstanding since April this year, with the outstanding amount for April-July estimated at Rs 1.5 lakh crore.
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