Kerala Chief Minister Pinarayi Vijayan has written to Prime Minister Narendra Modi expressing dissent over the Finance Ministry’s proposal of borrowing by states to meet the GST compensation shortfall. In the letter dated August 31, CM Pinarayi has asked PM Modi to advise the Finance Ministry not to transfer the burden of GST compensation to states.
Expressing the concerns over the proposal, CM Pinarayi said in the letter that the proposal is in violation of the ‘spirit and understanding’ reached by the states and the Centre in bringing the Goods and Services Tax (Compensation to States) Act.
While bringing in the GST Act, the Centre had assured the states that it will pay for any loss of revenue incurred to the states in the first five years of implementation of the act from 2017.
But last week, the Finance Ministry proposed that states can borrow from the Reserve Bank of India or from the market to meet the GST compensation. It also proposed to extend the compensation cess that is levied on luxury goods beyond 2022.
“It may kindly be noted that the revenue loss and expenditure pressures have been much greater for the states and this artificial distinction that is being sought to be drawn would exacerbate the already severe fiscal stress to the states,” wrote Pinarayi.
He added that, “It is worth recalling that the compensation promised and the statutory backing given to the same was an important factor which prompted the states to accept uniform rates for supply of goods and services despite the rate fall inbuilt in the structure of GST.”
Pinarayi said that both the two borrowing options laid out by the Centre will go against this agreement reached earlier.
As per the Centre’s promise, the GST compensation is supposed to be distributed to the states every two months. In the letter, Pinarayi states that from April 1, 2020 Centre has not released any compensation to the states. For Kerala alone, Centre has a due of Rs 7,000 crore from the month April to August.
Last week, Finance Minister Nirmala Sitharaman had said that part of the loss incurred in the GST was unprecedented due to COVID-19, thus coming with the proposal which many states including Kerala has stated that will be a burden to the state governments. Kerala Finance Minister Dr Thomas Isaac had also come out criticizing this. He said during the hours-long discussions held last week, this proposal was not discussed and was only mooted at last by the Chair at last, giving no time for states to react on it.