Kerala CM Pinarayi Vijayan writes to PM Modi; conveys concern on GST compensation to states

By: |
September 2, 2020 7:49 PM

Noting that when GST was implemented with effect from July 1, 2017, it was agreed that states would be assured of an annual compounded growth rate of 14 per cent in GST revenue with 2015-16 as the base year during the initial five years of implementation, he said this was incorporated in the Goods and Services Tax (Compensation to states) Act, 2017.

He said 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 of the states.

Kerala Chief Minister Pinarayi Vijayan has written to Prime Minister Narendra Modi to convey his government’s concern over the ‘hurdles’ in payment of Goods and Services Tax compensation to the states. Vijayan sought the Prime Minister’s intervention and requested him to advise the Finance Ministry not to go ahead with the plans to transfer the burden of GST compensation on the states and instead, follow the letter and spirit of the Goods and Services Tax (Compensation to States) Act, 2017.

“It is felt that transferring the obligation of GST compensation to the states through their borrowing is not in
accordance with the spirit of understanding reached between the Centre and the states during the discussions preceding the constitutional amendment for bringing in GST. The two borrowing options sent by the Ministry of Finance, Government of India, to the states of August 30, 2021, go against this and need to be withdrawn”, the Chief
Minister said in the letter dated August 31.

Noting that when GST was implemented with effect from July 1, 2017, it was agreed that states would be assured of an annual compounded growth rate of 14 per cent in GST revenue with 2015-16 as the base year during the initial five years of implementation, he said this was incorporated in the Goods and Services Tax (Compensation to states) Act, 2017.

“Section 7 of the Act states that compensation shall be payable to the states and it shall be provisionally calculated
and released at the end of every two month period. Unfortunately, since 2019-20, this provision has not been adhered to,” Vijayan said, adding that from April 1, 2020, no compensation has been released to the states.

“The amount due to Kerala during the period April to August of financial year 2020-21 is Rs 7,000 crore,” he said.
Vijayan said recently, the argument advanced by the Finance Ministry in the GST council was that part of the loss
was unprecedented as a result of COVID-19.

He said 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 of the states.

“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,” he said.

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