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“Betrayal”: Mamata Banerjee, 5 Other Chief Ministers Write To PM Over GST

Centre and states are fighting over Rs 2.35 lakh crore due in GST and Covid compensation (File)

New Delhi:
The chief ministers of six non-BJP-ruled states have written to the centre to remind it of its “constitutional” responsibilities in the stand-off over the Rs 2.35 lakh crore shortfall in GST compensation and financial relief. Mamata Banerjee (Bengal), Pinarayi Vijayan (Kerala), Arvind Kejriwal (Delhi), Edappadi K Palaniswami (Tamil Nadu), K Chandrasekhar Rao (Telangana) and Bhupesh Baghel (Chhattisgarh) uniformly rejected payment options – that states borrow to offset dues – and reminded the centre it had a legal duty to reimburse states’ loss of revenue in the first five years of the GST regime. They said that if states were to borrow then the repayment schedules would place an increased burden on their finances. The centre, they said, could take up this burden and pay back the loan by carrying forward GST cess collection past 2022.

Here are the top 10 points in this big story:

  1. In her letter Ms Banerjee said the “GST imbroglio” amounted to a “betrayal” of trust – a point also made by Kerala Finance Minister Thomas Isaac – between centre and states. She reminded Prime Minister Narendra Modi that “… in December 2013… sole reason why BJP was opposing GST… was because it did not trust then government of India in honouring GST compensation to states”. “Today (those) words are ringing true in our ears as we are losing our trust in the BJP government at the centre,” the Bengal Chief Minister wrote.

  2. Ms Banerjee pointed out the centre’s repayment options required states to borrow money at a time when many are unable to pay salaries to employees and even default on pensions to senior citizens. The centre, she said, was better placed to borrow since it would incur a lower rate of interest than states. She said the Government of India could raise resources to service its debts, whereas states “simply cannot service huge additional debts when their finances are on the verge of collapse”.

  3. The Kerala Chief Minister said that transferring obligation of GST compensation to states through borrowing was not in accordance with the spirit of understanding reached between centre and states on this issue. Referring to comments made by Union Finance Minister Nirmala Sitharaman during a meeting of the GST Council, Mr Vijayan said: “it may be kindly (noted) that revenue loss and expenditure pressures have been greater for the states”.

  4. Like his counterparts Mr Vijayan also reminded the centre that “it was agreed upon that states would be assured of an annual compounded growth rate of 14 per cent in GST revenue… during the initial five years”. “From April 1, 2020, no compensation has been released to the states,” he added.

  5. Delhi Chief Minister Arvind Kejriwal wrote: “… extremely onerous burden on States… reeling under financial crisis due to shortfall in revenue collections and increased commitment of expenditure emerging from COVID-19 response”. Mr Kejriwal too said that assurance of compensation to meet the shortfall in collections was one of the pillars on which the entire GST edifice rested.

  6. “… states are required to borrow… to make good shortfall in compensation… this is administratively difficult… and more expensive,” Tamil Nadu Chief Minister Edappadi K Palaniswami whose party is allied with PM Modi’s BJP said in his letter. Macro-economic indicators count “overall general government deficit and borrowing” and not if the state or the centre had borrowed, he added in response to the centre’s concerns over large-scale borrowings.

  7. Meanwhile, Telangana Chief Minister K Chandrasekhar Rao, or KCR, echoed Ms Banerjee’s concern over federalism, writing: “The centre is abdicating its responsibility of compensating states…” KCR, who had supported the GST regime with national interest in mind, pointed out that the centre had earned around Rs 2 lakh crore in additional revenue from a cess on petroleum products that had pre-empted states from increasing VAT on petrol and diesel.

  8. “You are well aware that as per constitutional provisions, the Centre is accountable for providing GST compensation,” Chhattisgarh Chief Minister Mr Baghel wrote in his letter.

  9. Last week Union Finance Minister Nirmala Sitharaman said the pandemic – which she described as an “act of God” – had hurt GST collection. She said the total shortfall for fiscal 2021 was Rs 97,000 crore and, including compensation because of the pandemic, states were owed Rs 2.35 lakh crore.

  10. The centre said these dues would be cleared but also that it wanted to stay clear of “avoidable borrowing… when it could be done at state level”. Instead, it said states could borrow from the markets. States said this would affect tax receipts after 2022, as they would have to repay loans from future collections.

  11. States were guaranteed payment for five years after the GST regime was enforced in July 2017. The centre, however, is struggling to pay these dues because the economy has been affected by the Covid lockdown. The centre had argued it had no obligation to repay shortfall if collections were down but the government’s top lawyer, Attorney General KK Venugopal, said the centre had to compensate states fully.

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