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Pre-Budget meeting | States demand extension of GST compensation for another 5 years

GST compensation to States for revenue shortfall resulting from subsuming of local taxes such as VAT in the uniform national tax will end in June.

December 30, 2021 06:12 pm | Updated 06:12 pm IST - New Delhi

Union Finance Minister Nirmala Sitharaman chairs the Pre-Budget meeting with State Finance Ministers in New Delhi on December 30, 2021.

Union Finance Minister Nirmala Sitharaman chairs the Pre-Budget meeting with State Finance Ministers in New Delhi on December 30, 2021.

Many states have demanded that the GST compensation cess regime be extended for another five years and the share of the Union government in the centrally-sponsored schemes be raised as the COVID-19 pandemic has impacted their revenues.

The GST compensation to States for revenue shortfall resulting from subsuming of local taxes such as VAT in the uniform national tax Goods and Services Tax (GST) will end in June next year.

“There has been a loss of revenue to the States due to the GST tax system, the Centre has not made arrangements to compensate the loss of revenue of about ₹5,000 crore to the State in the coming year, so the GST compensation grant should be continued for the next five years after June 2022,” Chhattisgarh Chief Minister Bhupesh Baghel said.

“Many states have asked for this. We have also asked to extend GST compensation. If it is not extended, the finances of many states will be in a bad shape,” Delhi Deputy Chief Minister Manish Sisodia said after pre-Budget consultation of finance ministers of states with Union Finance Minister Nirmala Sitharaman in New Delhi.

Pointing out that Chhattisgarh has received less share of central taxes by ₹13,089 crore in the Union Budget of the last three years, Mr. Baghel demanded the share of central taxes should be given to the state completely in the coming year.

He also demanded that ₹4,140 crore deposited with the Centre at the rate of ₹294 per tonne on coal mining from coal block companies should be transferred to Chhattisgarh soon.

Rajasthan Education Minister Subhash Garg said extension of compensation cess window till 2026-27 is a valid demand of states and the Centre should consider it.

He also demanded reduction in import duty on gold and silver from 10% to 4%.

“Our most significant demand is that the Centre’s share in centrally-sponsored scheme has gradually reduced and states share has increased. Earlier share would be 90-10 and now it is 50-50 or 60-40, our request is that it should go back to 90-10,” Mr. Garg said.

Rajasthan also requested that all irrigation and water work projects should be brought under the Centre’s ambit and declared central schemes.

West Bengal also pitched for extension of GST compensation for another five years citing two years of difficult time due to COVID-19.

“COVID-19 crisis was not anticipated when this was fixed,” said West Bengal Urban Development & Municipal Affairs Minister Chandrima Bhattacharya. She also said that States have also asked for raising the Union government’s share in the Centre-sponsored schemes.

With regarding to State borrowing, she said that additional borrowing window should be without any restriction.

Tamil Nadu Finance Minister P Thiaga Rajan said he has demanded extension of GST compensation cess regime for at least two years because of COVID-19.

He also made a case for raising share of Government of India in the centrally-sponsored schemes.

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