Centre can't be held liable for revenue loss in pandemic, Himanta told GST Council

Assam minister Himanta Biswa Sarma. File photo.   | Photo Credit: The Hindu

Assam Finance Minister Himanta Biswa Sarma may not have used the precise phrase, “Act of God”, which Union Finance Minister Nirmala Sitharaman did to describe the COVID-19, but he did put forward legal arguments to prove that the Goods and Services Tax (GST) revenue shortfall due to the pandemic could not be laid at the Centre’s door, hence absolving it from having to raise loans to finance the same.

His intervention came in the midst of a heated debate at the GST Council meeting on Thursday, where Finance Ministers of Opposition-ruled States forcefully argued that it should be the Centre and not the States that should raise loans to make up for the revenue shortfalls.

According to those present at the meeting, opinions of the Opposition-ruled States were getting traction at the Council meet, with Maharashtra suggesting an extension of the 5-year period for GST compensation, while Telangana, Chhattisgarh, Jharkhand and Puducherry wanted the Centre to raise loans. All the States were in agreement that loans had to be raised to make up the shortfall.

Mr Sarma, representing the BJP-ruled Assam, cited Section 18 of the 101stAmendment, which said : “Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for the compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years.”

He observed that the mandate of Section 18 was unambiguous, that the Centre was duty bound to pay the shortfall that arose out of the implementation of the GST regime, whereas shortfalls due to the pandemic were not covered under the law.

“In addition to the proclamation of a national lockdown, individual States also announced their own lockdowns knowing the fact that it would adversely affect their revenues. In such a scenario, how can the Centre be made liable for the loss in revenue,” he is reported to have said. He dismissed arguments on the “morality” of the Centre’s liability vis-à-vis States and asserted that the legal position was clear. “As for a portion of revenue loss that can be attributed to GST implementation, the Centre should grant fiscal space to the States to compensate for that loss,” he stated.

Cascading effect

Mr. Sarma also noted that large borrowings by the Centre, the kind being proposed by the States, would have a cascading effect on raising interest rates across the country and would be detrimental at many levels.

Revenue secretary Ajay Bhushan Pandey also spoke after the deliberations concluded. He said the Centre should not go for borrowing in its name as it would affect the credit rating of the country in the international market.

At Mr. Sarma’s proposal (and seconded by West Bengal), the State governments agreed to ponder over the two proposals of State borrowing put forward by the Union Finance Ministry for a period of seven days.

The first proposal is of the States directly availing loans form Reserve Bank of India, with the Centre facilitating the loan and helping get G-security linked interest rates.

The second proposal is of the States forming a consortium for availing of loans for the amount pertaining to the financial year 2020-21 and revisiting it the next year.

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Printable version | Jun 13, 2021 1:03:29 AM |

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