Opposition-ruled States will press the Centre to waive taxes levied on COVID-19 relief material, including vaccines, and seek a speedy pay-out of their compensation dues as the Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, reconvenes after a seven-month break on Friday.
Hit hard by the second wave of the COVID-19 pandemic, these States will also seek an extension of the compensation due to them under the GST regime beyond the original five-year window that expires in June 2022. They will also urge the Centre to enhance their borrowing limits to enable them to raise debt of up to 5% of their Gross State Domestic Product.
Opposition States have joined forces to demand that GST dues be paid at the earliest so they can keep fund pandemic-related spending.
GST compensation cess collections are expected to fall short by ₹1.65 lakh crore this year and an estimated ₹63,000 crore is still pending to States from last year.
The newly appointed Finance Ministers of Tamil Nadu and Kerala, and their counterparts from Punjab, Jharkhand, Chhattisgarh, and West Bengal met virtually at a meeting hosted by the Rajasthan government on Thursday and vowed to ‘remain united’ at the Council’s meeting. Opposition-ruled Maharashtra and Delhi were not part of the meeting.
These States will also press for a GST exemption on COVID-19 vaccines, whose procurement has now been largely delegated to them, along with waiving of all taxes on goods purchased for fighting the COVID-19 pandemic.
Ms. Sitharaman had earlier snubbed a plea from West Bengal Chief Minister Mamata Banerjee for exempting the GST levied on COVID relief supplies, arguing it would be ‘counterproductive’ and States will get a share of such GST revenues.
Cash flow worries
“The Union government should respect the spirit of co-operative federalism and release compensation for the GST revenue losses without delay,” said Rajasthan Urban Development and Housing Minister Shanti Dhariwal.
Kerala’s new Finance Minister K. N. Balagopal told The Hindu that States will seek immediate disbursement of GST compensation arrears and extension of the GST compensation for four to five years in view of the economic crisis arising due to pandemic-induced lockdown. Kerala will also demand that GST compensation be paid as a grant instead of the special borrowing window used to meet part of last year's shortfall.
“Only 38% of the GST compensation requirement of ₹2.65 lakh crore may be met through the compensation cess. If the balance ₹1.65 lakh crore is to be met through back-to-back loans like last year, expediting the same could alleviate the States’ anticipated revenue crunch over the next two months,” said Aditi Nayar, chief economist at ICRA.
On Monday, Punjab Finance Minister Manpreet Singh Badal had written to Ms .Sitharaman stating that the Council’s agenda is ‘mundane’ and the high GST levies on COVID essentials, including medicines, test kits and oxygen concentrators, were ‘baffling’ amid the crisis faced by the country.
“We need a GST with a heart and I shall strongly urge you to place the agenda at the ensuing meeting,” he said, citing a Delhi HC judgement that termed the GST levy on concentrators imported for personal use as ‘unconstitutional’.
Addressing a virtual press conference, Mr. Badal pointed out that the Council was meeting after a gap of seven-and-a-half months, when there was an “emergency situation” because of the pandemic that had impacted businesses.
Mr. Badal also talked about his party’s plan to stress on bringing life saving drugs and medical equipment under the zero rate category of GST.
The Punjab Finance Minister claimed that all States, ruled either by the BJP or its rivals, had been affected by the pandemic and there was a need to reset the GST equation with the Centre. “Opposition States will be asking for an outright grant and no borrowing tomorrow and also an extension of the period of compensation,” he told reporters.
Mr. Badal said States had been assured a compensation of 14% per annum in case of revenue loss, but arrears had been piling up, with Punjab alone having a pending arrears of ₹5,000 crore. He said interest of the States needed to be factored in as it was the State governments that carried out the bulk of welfare activities like health care, education, social security and law and order.
“The responsibility of the State government is far larger than the Government of India's. All we are looking for is a fair system and a net when the poorest of the poor don't suffer because of the wrong decisions of Government of India or due to the pandemic," he said.
Questioning the role of the GST Implementation Committee (GIC) in tax administration, Mr. Badal said, “Are they the people who are constitutionally empowered to run the tax administration of India? When lives and livelihoods are being impacted and businesses affected, we can't leave decisions in the hands of the bureaucracy. The GST Council can't be allowed to be short-circuited. We do not want to give our sovereignty to the bureaucracy”.
