India’s eastern state of Chhattisgarh has sought extension of Goods and Services Tax (GST) compensation to states for at least five years beyond the June 30 deadline.
The state will present a proposal in the GST Council meeting to continue with 14 percent protected revenue provision, TS Singh Deo, Chhattisgarh’s cabinet minister for commercial tax said in a letter to Union finance minister Nirmala Sitharaman at the start of the meeting on June 28-29.
Singhdeo is not attending the meeting as he is isolating at home after testing positive for COVID-19.
To get the states on board prior to the nationwide roll-out of the consumption-based tax that subsumed most state-level levies, New Delhi had assured them annual GST revenue growth of 14% for a period of five years to June 30, 2022 with any shortfall being met from a compensation cess fund.
The Centre is not in favour of extending the compensation.
A slowing economy and the pandemic squeezed flows from cess that is used to finance compensation to the states, widening the gap between the dues and the available cash. To plug the shortfall in GST compensation to states, New Delhi borrowed Rs 1.59 lakh crore and Rs 1.1 lakh crore over the previous two financial years. The compensation cess will continue until 2026 to fund the debt obligations.
Chhattisgarh’s Singh Deo said that manufacturing and mining states, which are not consumers, suffer revenue loss under GST.
In case the GST compensation to states is not continued, the states must have a greater share of the GST revenues, he added.