GST Compensation: Betrayal, Say Mamata Banerjee, 5 Other Chief Ministers, Write To PM Over GST

Centre and states are fighting over Rs 2.35 lakh crore due in GST and Covid compensation (File)

New Delhi: The chief ministers of six non-BJP-ruled states have written to the centre to remind it of its "constitutional" responsibilities in the stand-off over the Rs 2.35 lakh crore shortfall in GST compensation and financial relief (from the pandemic) due to states. Mamata Banerjee (Bengal), Pinarayi Vijayan (Kerala), Arvind Kejriwal (Delhi), Edappadi K Palaniswami (Tamil Nadu), K Chandrasekhar Rao (Telangana) and Bhupesh Baghel (Chhattisgarh) rejected re-payment options - that states borrow to offset dues - and reminded the centre it had a legal duty to reimburse states' loss of revenue in the first five years of the GST regime. They said if states were to borrow then repayment schedules would place an extra burden on their finances. The centre, they said, could take up this burden and pay back the loan by carrying forward GST cess collection past 2022.

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In her letter Ms Banerjee said the "GST imbroglio" amounted to a "betrayal" of trust - a point also made by Kerala Finance Minister Thomas Isaac - between centre and states. She reminded Prime Minister Narendra Modi that "... in December 2013... sole reason why BJP was opposing GST... was because it did not trust then government of India in honouring GST compensation to states". "Today (those) words are ringing true in our ears as we are losing our trust in the BJP government at the centre," the Bengal Chief Minister wrote.
Ms Banerjee pointed out the centre's repayment options required states to borrow money at a time when many are unable to pay salaries to employees. The centre, she said, was better placed to borrow since it would incur a lower rate of interest than states. She said the government could raise resources, whereas states "cannot service huge additional debts when their finances are on the verge of collapse".
The Kerala Chief Minister said transferring obligation of GST compensation to states through borrowing was not in accordance with the spirit of understanding between centre and states on this issue. Referring to comments by Union Finance Minister Nirmala Sitharaman during last week's meeting of the GST Council, he said: "it may be kindly (noted) that revenue loss and expenditure pressures have been greater for the states".
Like his counterparts Mr Vijayan also reminded the centre that "it was agreed upon that states would be assured of an annual compounded growth rate of 14 per cent in GST revenue... during the initial five years". "From April 1, 2020, no compensation has been released to the states," he added.
Delhi Chief Minister Arvind Kejriwal wrote: "... extremely onerous burden on States... reeling under financial crisis due to shortfall in revenue collections and increased commitment of expenditure from COVID-19 response". Mr Kejriwal too said assurance of compensation to meet shortfall in collections was one of the pillars on which the entire GST edifice rested.
"... states are required to borrow... to make good shortfall in compensation... this is administratively difficult... and more expensive," Tamil Nadu Chief Minister Edappadi K Palaniswami, whose party is allied with PM Modi's BJP, said in his letter. Macro-economic indicators count "overall general government deficit and borrowing" and not who borrowed, he said in response to concerns over large-scale borrowings.
Telangana Chief Minister K Chandrasekhar Rao, or KCR, echoed Ms Banerjee's concern over federalism, writing: "The centre is abdicating its responsibility of compensating states..." KCR, who had supported the GST regime with national interest in mind, pointed out the centre had earned Rs 2 lakh crore from a cess on petroleum products that had pre-empted states from increasing VAT on petrol and diesel.
"You are well aware that as per constitutional provisions the centre is accountable for providing GST compensation," Chhattisgarh Chief Minister Bhupesh Baghel wrote.
Last week Union Finance Minister Nirmala Sitharaman said the pandemic - which she described as an "act of God" - had hurt GST collection. She said the total shortfall for fiscal 2021 was Rs 97,000 crore and, including compensation because of the pandemic, states were owed Rs 2.35 lakh crore.
The centre said these dues would be cleared but also that it wanted to stay clear of "avoidable borrowing... when it could be done at state level". Instead, it said states could borrow from the markets. States said this would affect tax receipts after 2022, as they would have to repay loans from future collections.