Borrowing for GST aid to states not a workable solution: Bengal Finance Minister Amit Mitra

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Published: July 2, 2020 2:51 AM

He blamed the faulty architecture of GST for below-potential GST revenue growth, even as the I-T infrastructure has been neither friendly to taxpayers nor prevented frauds and evasion.

An economic recession in FY21 is likely to widen the gap between the compensation cess funds and protected revenue.An economic recession in FY21 is likely to widen the gap between the compensation cess funds and protected revenue.

West Bengal finance minister Amit Mitra on Wednesday said that the proposal to borrow from the market to compensate states under the GST regime was not a workable solution.

The GST Council in its meeting last month had decided to hold a one-agenda meeting in July to discuss the option of borrowing to bridge the gap between states’ protected revenue and actual GST collections. An economic recession in FY21 is likely to widen the gap between the compensation cess funds and protected revenue.

Speaking to CNBC TV18, Mitra said states’ protected annual revenue growth of 14% — on the base of FY16 revenue collection from all items subsequently subsumed under GST — was based on a reasonable growth rate which “this government at the centre has failed to produce”. He added that the economic growth had fallen continuously over the quarters even before Covid.

He blamed the faulty architecture of GST for below-potential GST revenue growth, even as the I-T infrastructure has been neither friendly to taxpayers nor prevented frauds and evasion. The questionable readiness of the IT system at the time of GST launch was further exacerbated by multiple interventions changes in number of forms, law and circulars, Mitra said.

“On March 14, Nandan Nilekani came to the GST Council and made the presentation — as Infosys works with the government on creating and maintaining the IT system — he said the model allows several kinds of frauds,” Mitra said.

Referring to Nilekani’s estimates, Mitra said that that fraud related to under declaration resulted in loss of Rs 31,247 crore between the fourth quarter of 2018 and the third quarter of 2019, which involved over 97,000 companies. Further, an additional revenue of Rs 38,771 crore was lost during the same year due to excess input tax credit claims which couldn’t be prevented in the absence of an invoice-matching system.

On the rationalisation of five slabs under GST, Mitra said that in a developing country like India exempt and 5% tax rate slabs would have to be there. Further, he said that the 28% slab could be pruned to only few items followed by an eventual merger of 12% and 18% slabs.

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