New Delhi: The Delhi and Kerala governments criticised the two options placed before the GST Council by the Centre for borrowing by states to meet the shortfall in tax revenues due to the COVID-19 pandemic.
The Kerala government on Thursday termed the options as “unacceptable”. Opposing the options for the Goods and Services Tax (GST) compensation proposed by the Union finance minister Nirmala Sitharaman, Kerala finance minister T.M. Thomas Isaac said in both options, the states will have to sacrifice a part of the compensation.
He made it clear that full compensation was a constitutional right of the states.
“Full compensation is constitutional right of states.
Unacceptable.#GSTCouncilMeet,” Isaac said in a tweet on Thursday night.
Earlier in the day, the Centre placed before the GST Council two options for borrowing by states to meet the shortfall in GST revenues, pegged at Rs 2.35 lakh crore in the current fiscal.
Briefing reporters after the 41st meeting of the GST Council, Sitharaman said in New Delhi that the economy is facing an extraordinary ‘Act of God’ situation, which may result in economic contraction.
As per the Centre’s calculation, the compensation requirement by the states in the current fiscal would be Rs three lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the GST regime. Hence, the total shortfall is estimated at Rs 2.35 lakh crore.
The options provided by the Centre include a special window to the states, in consultation with the RBI, at a reasonable interest rate for borrowing of Rs 97,000 crore. The amount can be repaid after five years (of GST implementation) ending 2022 from cess collection. The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window.
Union finance minister Nirmala Sitharaman chairs the 41st GST Council meeting via video conferencing, in New Delhi, Thursday, August 27, 2020. Photo: PTI
Delhi government’s criticism
Meanwhile, Delhi finance minister Manish Sisodia accused the Centre of “betraying” federalism by refusing to pay GST compensation to states, and demanded it take a loan from the RBI on behalf of his government, which he said is facing a revenue shortfall.
Under the current hybrid system (of governance), the Delhi government cannot take a loan from the RBI, Sisodia said. “The Centre should take a loan from the RBI on behalf of the Delhi government,” he said.
Sisodia, also Delhi’s deputy chief minister, said the city government estimates a revenue shortfall of around Rs 21,000 crore in the current financial year.
Sisodia also charged the Centre with failing to fulfil its promise made to the states when the GST regime was launched four years ago. “The Centre had promised that it will pay GST compensation to states at the rate of 14% for five years in case of a revenue shortfall. But, today at the GST Council meeting, the Centre refused it, saying there was no provision in law for compensation in situations like a pandemic,” Sisodia said in a briefing.
He accused the Centre of “double standards”.
“In the first two years, when the Central government earned extra cess of Rs 47,000 crore, which was supposed to be given as compensation, they kept it in their fund. Today, when the revenue is decreasing, they started taking the opinion of the attorney general on whether they are liable to give this amount to states or not,” he said.
Sisodia also alleged that the Centre has “failed” to properly implement the GST regime, which was why it could not neither control price rises nor boost the revenues of the states.
“I am not against GST, but the Central government has failed to implement it properly. Had they implemented it properly, the states would not have to beg like this. First, the Centre failed in implementing GST reforms properly, and now they are betraying states and running away from its responsibility of giving GST compensation,” he said.
refusal to pay compensation is the “biggest betrayal” in the history of Indian federalism, says Sisodia. Photo: PTI
“The Delhi government collected Rs 7,000 crore less tax in the first four months of the fiscal. It will have a shortfall of Rs 21,000 crore in the whole year.
“The Central government should take a loan on our behalf as we also need to pay salaries to our doctors, teachers, engineers and other employees,” he said.
If there were no GST, the states would have managed taxes and expenses in their own way. But after joining the GST regime, they had to surrender most of their rights to the GST council, he said.
Sisodia claimed that many states, including some BJP-ruled ones, demanded compensation from the Centre in the meeting.
They quoted the minutes of previous meetings of the GST Council where it was “clearly stated” that the Central government “takes full responsibility” to compensate them in case of revenue shortfall, he added.