GST compensation: States should reject options given by Centre, says Chidambaram

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August 28, 2020 11:12 PM

"States must reject both options and demand, in one voice, that the Centre must find the resources and provide the money to the States," Chidambaram tweeted. 

Under the law, the obligation to compensate the states falls solely on the central government, the senior Congress leader noted.

Senior Congress leader P Chidambaram on Friday urged states to reject options given to them by the Centre over the GST compensation issue and demand money in one voice. His remarks come a day after the government asked states to borrow more to make up for revenue losses due to pending GST dues. “States must reject both options and demand, in one voice, that the Centre must find the resources and provide the money to the States,” Chidambaram tweeted.

“The two options given by the Modi government to the States to bridge the GST Compensation gap is a gross violation of the law and an abdication of the responsibility of the central government,” he said. He claimed that in either option, the central government is passing the buck of financial burden to the states.

Under the law, the obligation to compensate the states falls solely on the central government, the senior Congress leader noted. “The latest assault on the States is part of an elaborate design of the Modi government to financially cripple the States and reduce them to beg for money from the Centre,” Chidambaram claimed.

Amid a chorus by non-NDA ruled states for compensation of GST revenue shortfall, the Centre on Thursday during the GST Council meeting told states that the estimated deficit of Rs 2.35 lakh crore this fiscal year can be made good by borrowing from the market against future tax revenues.

At the end of a five-hour long meeting of the GST Council, Union Finance Minister Nirmala Sitharaman said there was no proposal to raise tax rates to make up for the shortfall that has been compounded by the COVID-19 pandemic hitting economic activity.

Citing a legal opinion from the attorney general, she ruled out the Centre making good the shortfall from either its coffers or by borrowing on its balance sheet. The Centre also made a distinction between revenue lost due to implementation of the GST and the economic slowdown arising out of the COVID-19 crisis.

The government said its legal obligation was only to compensate states for losses arising out of the GST rollout.

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