Kerala has decided to stick to its stance to reject the two alternatives presented by the Union government for paying out this year’s compensation to States on account of the implementation of the Goods and Services Tax (GST).
Finance Mininster Nirmala Sitharaman will chair the Council’s 42nd meeting on Monday, where possible solutions are expected to be discussed to resolve the impasse over compensation. The Centre has claimed the support of 21 States on its proposal that States should borrow from the market to meet the compensation shortfalls from GST revenue.
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The Centre has estimated a ₹2.35-lakh crore shortfall in cess collections used to recompense States, while compensation payments of ₹3 lakh crore are due this year. It has argued that only ₹97,000 crore of this shortfall can be attributed to GST implementation, while the rest is due to the unprecedented economic stress arising from the pandemic and the lockdowns.
Ten Opposition-ruled States, including Kerala, are yet to agree to the proposals which envision States raising ₹97,000 crore via a special borrowing window to be created by the central bank, or borrowing the entire ₹2.35 lakh crore shortfall in compensation cess collections from the market.
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Kerala Finance Minister T. M. Thomas Isaac said there can be no bifurcation of revenue shortfall for compensation purposes as due to pandemic and due to implementation of GST. “The entire shortfall needs to be compensated and it is the the constitutional right of the States. The compensation cannot be linked to normal borrowing or additional borrowing limits allowed to them,” he said.
Kerala, the first State to speak out against the Centre’s proposals, will stick to the stance that both the options infringe upon the above two cardinal principles and are not acceptable. “We would outright reject all notions that States refusing to make the choice will lose their GST compensation till 2022,” Dr. Isaac said.
Once the Centre accepts these two basic principles, the State is willing to discuss and arrive at a consensus regarding who borrows and in what proportion, what amount to be borrowed and what amounts need to be deferred to 2022. Extending the compensation cess levy from its original period of five years to facilitate repayments on borrowings can also be discussed.
There is a need to implement interim measures while the larger issues are discussed, as it is important that at least a part of the compensation to the States be paid immediately, given the shortfall in the revenues of the States and financial crunch, he said.
If there is no consensus in the GST Council on the negotiable issues, Dr. Isaac said the legal provisions for a Dispute Resolution Mechanism within the Council should be activated without delay. The long-standing demand of the States to appoint a Vice-Chairperson to the GST Council should be considered and implemented at the earliest, he urged.
The CAG audit report findings about the Centre incorrectly parking compensation cess collections in the Consolidated Fund of India, over the first two years of GST implementation, are also likely to be raised by some Opposition-ruled States.
The Kerala FM said the Central government’s approach has pushed the economy to the brink of disaster. “The actions cannot be viewed in isolation. There is significant erosion of trust. Circumstances point to a situation where the Centre’s actions are constricting the States’ resources and their financial autonomy,” he said.
In a review of the economy’s performance in September released on Sunday, the Ffinance Ministry said the Centre continues to lend unflinching support to State governments towards faster economic revival. “Despite the pandemic and the fall in the gross tax revenue to ₹5.04 lakh crore in the April-August period from as much as ₹6.6 lakh crore a year before, the tax devolution to States stood at ₹2.17 lakh crore in the first five months of this fiscal, compared with ₹2.55 lakh crore in the previous year,” it said.