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GST meet: Congress tells Centre to compensate states fully for Rs 6 lakh crore revenue loss

Congress seeks extension of GST compensation cess collection to 10 years; demands all borrowing to tide over COVID-19 crisis must be done by the Centre

twitter-logoJoe C Mathew | August 27, 2020 | Updated 10:08 IST
GST meet: Congress tells Centre to compensate states fully for Rs 6 lakh crore revenue loss
Finance Minister Nirmala Sitharman

As the GST (Goods and Service Tax) Council members are scheduled to meet today, opposition party Congress has asked the Centre to fully compensate the states for an estimated Rs 6 lakh crore revenue loss due to the continuing economic slump. The party also wants the states to be paid their dues -- the compensation for any growth below 14 per cent of the GST collections -- as mandated by the GST Compensation Act, on time.   

In a joint statement, Congress leaders Rajeev Gowda, S Manpreet Singh Badal (Finance Minister, Punjab) and Krishna Byre Gowda (former the finance minister of Karnataka) said any payment less than what's promised by the Centre is a betrayal of the faith of India's states.  

Congress leaders called for an extension of the GST compensation cess collection to 10 years and demanded that all borrowing to help tide over the COVID-19 crisis must be done by the Centre as it can raise resources at a lower cost and bear the debt burden better than states. The party also wants the Centre to reduce its reliance on cess and share the revenues (with states) fairly. "It is high time that the centre-state fund sharing formula from Finance Commissions becomes a reality," the statement said.

Also read: Coronavirus impact: July GST collections dips 14.6% to Rs 87,422 crore

Also read: GST Council to hold virtual meet to finalise compensation to states on Aug 27 

The Indian economy was already experiencing the 'Modi Slump' before the Centre's bungling triggered the COVID-19 collapse, it added.  

Stating that states will have to pay the price for the Centre's "incompetence", the party pointed out to the government's submission before the Parliamentary Standing Committee on Finance that it does not have funds to pay the 14 per cent GST compensation it is statutorily mandated to pay to states. "States are at the forefront of the fight against COVID. At such a crucial time, it is crucial the Central government come to the aid of states. A loss of 6 lakh crore will force states to cut down the expenditure of key programmes and policies. What steps is the Modi government taking to avert this crisis? It is shocking to know that instead of taking steps to help states, it is preparing grounds for betrayal. It is replacing cooperative federalism with coercive federalism," the statement said.   

The Congress also said the states gave up their constitutional powers of taxation on the Centre's promise that they will be compensated. "States are already disadvantaged as a higher proportion of their expenditure is towards committed expenses like salaries and pension. Most of their independent revenue streams were severely impacted in the pandemic months -- revenue earned through the tax of liquor, petrol, diesel, property sale and purchase, etc. Starving states of funds has been the official policy of this government. While the Fourteenth Finance Commission recommended states receive 42% taxes from the divisible pool, the government ensured that the state's share in gross tax collections remained stagnant at 32%," the party said.   

The party also said the existing allocations under the disaster relief were grossly inadequate and most states were not in a position to raise its borrowing limits by adhering to the conditions stipulated by the Centre. "As per a PRS report, the Central government has raised Rs 3,69,111 crore revenue through cess and surcharges in 2019-20. If this tax revenue collected by the central government had been a part of the divisible pool, it would have increased the devolution receipts of states. The Centre has also raised the borrowing limit for states by 2 per cent (from 3% to 5%) of their GDSP. However, part of the hike i.e. 1.5 per cent would require them to undertake various reforms in sectors like power, food distribution and so on. Very few states can meet these conditions, thus rendering this concession useless," the party statement added.

ALSO READ: West Bengal FM urges Centre to pay compensation cess ahead of GST mee

ALSO READ: Once bitten twice shy, industry hopes FM will deliver the goods this time

Also Read: GST collection jumps 46% to Rs 90,917 crore in June compared to May; declines 9% YoY

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