Economy

GST dues: Opposition States flay Centre’s stand

Our Bureau New Delhi | Updated on August 28, 2020

Thomas Isaac, Finance Minister, Kerala

Amit Mitra, Finance Minister, West Bengal

Opposition-ruled States have described as “unconstitutional” the Centre making the distinction in GST revenue shortfall due to implementation issues and that caused by Covid-19. These States are working on a coordinated strategy to force the Centre’s hand into fulfilling what they believe are solemn commitments.

While the West Bengal Finance Minister Amit Mitra had already warned the Finance Minister Nirmala Sitharaman against doing anything “that will give a death blow to this unique collective effort”, his counterpart from Kerala Thomas Isaac said the Centre’s stand is “not acceptable”. Significantly, before the sharp responses of the State FMs, the Chief Minister of Maharashtra, Uddhav Thackeray, had warned the Centre against depriving the States of their fiscal power and consolidation of power in the Centre.

The West Bengal FM, in his letter to Sitharaman, said the idea of compensation to the States was thoroughly debated before the introduction of the GST and had led to a Constitutional amendment and insertion of Section 18.

“This Section was carefully worded, of course, with full support and agreement of the Centre so as to give comfort to the States that their fiscal interests are adequately protected. It not only cast upon the Centre a Constitution obligation but also a moral one as well, to safeguard the sensitive fiscal relationship that exists between the Centre and the States and which is highly skewed in favour of the Centre,” said Mitra, in his letter.

Mitra said that his worst fears seem to be coming true in the Centre’s response. “May I mention here that with the introduction of the GST, the States collectively surrendered their autonomy and independence of 70 per cent of taxing powers bestowed to them under the Constitution. It appears that my worst fears are now coming true.

It is surprising that the Constitutional guarantee given to the States is being interpreted in a manner that the Centre is not responsible to compensate the States and it is the States (in the GST Council) which will have to find means to compensate themselves,” said Mitra.

The GST Council is expected to come up with one mechanism to meet the compensation shortfalls for States and Union Territories, as implementing more than one system will create administrative troubles.

“It will not work if few States go for option one and others go for option two, as it will create administrative problems,” a senior government official told BusinessLine. It is expected that each of the States will give their views on options and based on majority views, effort will be to arrive at a consensus to adopt one option for all.

Another official said that the rate of interest will be linked to the repo rate. Based on the advice of the Attorney-General, cess can be continued to be imposed beyond June 30, 2022. However, the money collected through the compensation cess is to be used for paying the principal and interest of borrowing to meet shortfall during the current fiscal.

‘Unacceptable’

According to Thomas Isaac, Finance Minister of Kerala, the position taken by the Centre at Thursday’s GST Council meeting is both unacceptable and unconstitutional. “The attempt of the Centre to introduce a distinction in revenue shortfall as due to implementation of the GST and as that caused by Covid is not constitutionally valid. The Constitution makes no such distinction,” said Isaac.

“In both options for GST compensation proposed by Finance Minister, States will have to sacrifice a part of compensation. In the first option only 0.5 per cent additional borrowing is permitted for ₹1.65 lakh crore due. Full compensation is the constitutional right of the States. This is unacceptable,” Isaac added.

The Left parties said the Centre is legally bound to fulfil its obligations of payment of GST dues.

Left parties condemn

“If needed, the Centre must borrow and pay the States their dues and cannot force the State governments to borrow. Having plunged the Indian economy towards recession even before the pandemic arrived, now to blame some ‘divine intervention’ for the Central Government’s inability to fulfil its obligations, is simply unacceptable,’ the CPI(M) said.

The CPI added that the surreptitious attempt by the Centre to run away from its responsibilities is not just unethical but also an affront on the federal structure of the country. “But this is not just a matter of compensating the States for what is due to them but also the nature of State-Centre relationship which has seen weakening and States are being deprived of their rights in all spheres of governance ever since BJP came to power at the Centre,” said CPI general secretary D Raja.

Published on August 28, 2020

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