The stage is set for a stormy Goods and Services Tax (GST) Council meeting to be chaired today by Union Finance Minister Nirmala Sitharaman as the states are expected to corner the Centre over the delay in compensation payments.
The day-long virtual meeting will discuss the possibility of states being asked to borrow from the market to meet the requirement for funds, an idea that has been opposed by the states ruled by the opposition.
States have not been compensated since May. The GST law says that the states are guaranteed full compensation for any revenue loss for the first five years after the introduction of the new tax regime in July 2017. So states should be compensated at least until July 2022 for any losses. But, during the 41st GST Council meeting that begins at 11 am, the Union Finance Ministry’s proposal is expected to be backed by a legal opinion given by the Attorney General who said that Centre was not obliged to compensate states.
Opposition-ruled parties have come together on the issue. On August 26, Congress president Sonia Gandhi held a virtual meeting with chief ministers of seven states to discuss GST compensation, among other issues.
"The refusal to compensate states for GST payments that are due is nothing short of betrayal," Gandhi said. The chief ministers decided to meet President Ram Nath Kovind and Prime Minister Narendra Modi, demanding GST dues, among other issues.
Punjab CM Amarinder Singh said that his state was going to be in a serious financial crisis and dues from the Centre stood at about Rs 7,000 crore. Earlier, the state’s Finance Minister Manpreet Singh Badal said that the Centre’s attempt to deny states the compensation was a “sovereign default”.
“We have not received compensation after March this year,” he said during a virtual press conference on August 25.
“States should not be made to bear the burden of borrowing, which in any case is likely to be higher than the rate at which the central government will be able to borrow,” Badal had said
West Bengal CM Mamata Banerjee said at the August 26 meeting that the Centre owed the state Rs 4,100 crore as GST dues. WB Finance Minister Amit Mitra had written to Union Finance Minister Nirmala Sitharaman, suggesting the Centre to use the money from other cess to pay the compensation, instead of asking states to borrow from the market.
"Centre must pay the compensation from different cesses that it collects, as it is not getting devolved to the states. In case of shortfall, it is the responsibility of the Centre to garner resources for fully compensating the states, as per formula agreed upon with the states,?" Mitra said in the letter to Sitharaman.
Kerala finance minister Thomas Isaac suggested that the Centre should empower the GST Council to borrow to meet the compensation requirement, through an ordinance, if necessary
“The solution to GST imbroglio is for the Central government to empower GST Council to borrow for meeting the compensation requirement, if necessary through an ordinance, on the strength of future receipts of an extended levy of compensation cess beyond 5 years by an appropriate notification,” he said in a tweet.
Bihar’s Deputy CM and Finance Minister Sushil Kumar Modi joined the chorus, as well. "The Centre should borrow and pay GST compensation to states even if it is not legally bound to do so. The Centre is morally bound to do so," he said in a statement.
Puducherry CM V Narayanasamy has said he would demand compensation during the meeting.
“I will forcefully demand in the GST Council. Either you pay our compensation within 15 days or you leave us; we will start our own pattern of taxation,” the CM added.
His Jharkhand counterpart, Hemant Soren, said that - since the implementation of GST - states had been in a bad situation. Maharashtra’s Uddhav Thackeray said the Centre was stopping even the supply of ventilators and now states would have to manage that cost as well.