GST share: Kejriwal tells PM Modi both options given by Centre will burden states, suggest new ways

GST share: Kejriwal tells PM Modi both options given by Centre will burden states, suggest new ways

Following a deliberation on the options given by the central government to the state governments on GST revenue share, Delhi CM Arvind Kejriwal on Tuesday wrote a letter to the Prime Minister Narendra Modi saying that the two options will put an onerous burden on the states.

Appealing to Prime Minister Modi to consider a legally viable option to tide over the economic crisis induced by the coronavirus pandemic, CM Kejriwal has said that the GST Council should consider authorizing the Centre to borrow on its behalf and extend the period of collection of cess beyond 2022.

The GST Council had on August 27 given two options to the states to tide over their GST revenue shortfall as the GST cess collected from items such as cars and tobacco was not adequate to compensate them in this financial year.

The Centre specified that the state governments could borrow either via a special window it will facilitate through the Reserve Bank of India (RBI) or raise debt from the market.

Terming the GST regime a landmark reform in the indirect tax structure of India, Kejriwal in the letter said that the assurance of the GST compensation to states to meet the shortfall in GST collections is one of the pillars on which the entire GST edifice rests. He also said that all the states will overcome the unprecedented situation that the Covid-19 pandemic has brought in, by working collectively.

In his letter addressed to the Prime Minister, Kejriwal has said, "It is in the background that I would like to submit that the two options of borrowing presented by the Ministry of Finance, Government of India which primarily require the States to borrow and then meet the repayment liabilities will put an extremely onerous burden on the States which are, as it is, reeling under the financial crisis due to the shortfall in the revenue collections and an increased commitment of expenditure emerging from COVID-19 response.”

“The Goods and Services Tax (Compensation to States) Act, 2017, very clearly provides for compensation to the States for the loss of revenue arising on account of the implementation of the GST in pursuance of the provision of the Constitution (101st Amendment Act, 2016). To create an artificial distinction between loss occurring due to the implementation of the GST and those occurring due to COVID-19 pandemic goes against the very spirit of the Compensation Act and will lead to a creation of a trust deficit between the Centre and the States, wherein in future, the States will be hesitant in coming together to achieve more such larger common national goals, as was done through the implementation of GST," the chief minister added.

Kejriwal also warned that the options proposed by the Centre will lead to a cumbersome process of borrowing by the states, crediting the debt amount to the GST compensation fund, "to which legally all the compensation fund has to be credited in terms of the Section 10 of the GST (Compensation Act, 2017) and thereafter release of such funds as may be due to the States from the Compensation Fund. The servicing and ultimate repayment of a loan through the States will also be similarly cumbersome & circuitous."

Requesting the Prime Minister for a more sustainable and viable option, CM Arvind Kejriwal said, "Considering the above situation, it is my humble submission that the Government of India may like to consider a much more simpler and legally sustainable option of borrowing by the Govt. of India to the full extent of the requirement of compensation in the year 2021 and 2022, to be serviced and repaid by the future collection of cess w.e.f 2022. For this purpose the GST Council may consider to authorize the Government of India to borrow on its behalf and extend the period of collection of cess beyond the year 2022. I am informed this was the consensual opinion of majority of the states during the deliberations held in the 41st GST Council meeting."

Kejriwal further stated that if this option is exercised, it will be acceptable to all the states and the states will be obliged to the Centre, for supporting them in such a situation and helping the states to tide over the financial crisis arisen due to Covid-19 pandemic.