States to approach apex court, if Centre fails to resolve GST compensation issue

Surabhi Mumbai | Updated on December 10, 2019 Published on December 10, 2019

Thomas Issac, Finance Minister, Kerala

Kerala FM says will oppose move to hike rate on lower tax slabs

State governments are hopeful that the upcoming Goods and Services Tax (GST) Council meet will set up a dispute resolution mechanism to address the issue of pending compensation.

“The GST law says the Council may set up a dispute resolution mechanism. If it doesn’t resolve the issue as per law, then we will approach the Supreme Court,” Kerala Finance Minister Thomas Isaac told BusinessLine, adding that apart from Kerala, a number of other States have also supported the plan.

At least eight States have sought early release of GST compensation from the Union Finance Ministry at a meeting earlier this month. Finance Ministers of Delhi, Punjab, Puducherry and Madhya Pradesh, and representatives of Kerala, Rajasthan, Chhattisgarh and West Bengal met Union Finance Minister Nirmala Sitharaman last week.

States claim that the total dues could be ₹50,000 crore or more.

Under the GST (Compensation to States) Act, 2017, any loss of revenue to States due to implementation of GST has to be compensated by the Centre for a transition period of five years and should be released every two months. The projected nominal growth rate of revenue for every State during this period is at 14 per cent annually.

Thomas expressed hope that the Centre will soon release the compensation and said that approaching the Supreme Court on the issue will “do irreparable damage to Centre and State relations”.

“They just forget this is one country and we are all in it together. At a time of recession, the Centre is trying to enforce a cut in the expenditure of States,” he said.

The GST Council is set to meet on December 18 when it is expected to look into revenue concerns and also review the tax structure.

Isaac said Kerala will oppose the proposal to hike GST rates for lower slabs.

“We have no objection to raising rates in the upper slab on luxury consumption goods because their rates were reduced from 28 per cent to 18 per cent. But now the suggestion seems to be to raise rates on lower slabs. That is totally inequitable and unacceptable,” he said, adding that Kerala will oppose any increase in lower slabs but will support a raise in rates of the upper slabs.

The GST Council is expected to review the GST structure to boost revenue collections and could possible look at merging the 12 per cent and 18 per cent rate into a single slab.

The issue of compensation cess and reviewing the rate structure have come to the forefront due to slowing GST collections.

Published on December 10, 2019

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