GST shortfall: Tamil Nadu too opts for Option 1, but sticks to demand for reworking scheme

Our Bureau Chennai | Updated on October 05, 2020

D Jayakumar, Minister for Fisheries and Personnel and Administrative Reforms   -  THE HINDU

Tamil Nadu, on Monday, indicated its preference for taking option 1 proposed by the GST Council on the issue of GST compensation shortfall, joining the majority of States that opted for the same.

“Option 2 has worked out to be completely unattractive and unacceptable to almost all States. In such circumstances and given the very limited options available, Tamil Nadu chooses Option 1 in the hope it will be reworked to reflect a higher proportion of the actual loss in revenue of States,” a statement quoting Tamil Nadu Minister for Fisheries and Personnel and Administrative Reforms D Jayakumar, who delivered his views during the 42nd Goods and Services Tax Council meeting held through video conferencing on Monday.

“I would submit to the Council that even for the current financial year, partial release of compensation may be a compulsion. But this ought not to be justified based on the presumptive loss solely on account of the introduction of GST. It is a fait accompli that given the fiscal situation, States have to remain content with receiving only a portion of the compensation.

“Further, the State governments had pointed out in the meeting conducted by the Union Finance Secretary that the assumption of 10 per cent normal growth in Option 1 is highly unrealistic and unwarranted. Hence, instead, the revenue gap of States must be assessed based on an appropriate proportion of the total anticipated loss this financial year under Option 1,” he said.

Jayakumar pointed out that under Option 1 an artificial distinction was being drawn between GST implementation-based losses and Covid-induced losses in order to limit the total amount of borrowing in 2020-21.

“Any attempt to carve out losses solely on account of GST vitiates the delicately balanced pact between the Centre and the States that this August Council has held so dear since the introduction of the GST regime,” he added.

While both the options of GST Council would entail borrowings from the open market by State Governments, the Tamil Nadu government had suggested that the Government of India could mobilise resources and lend the funds required to the GST Compensation Fund. The loan could then be serviced through an extension of the GST cess for a few years beyond 2021-22. But this has not been accepted by the Centre.

He made a plea to the GST Council to resolve the issue of compensation to the State in a timely manner preserving the mutual trust which is the bedrock of GST and also to expedite the payment of IGST settlement dues.

Jayakumar pointed out that in this fiscal up to July 2020, compensation of ₹12,258.94 crore was due to be paid to Tamil Nadu. It is a matter of grave urgency that the GST compensation payments are made immediately to enable the State to continue to battle against Covid-19.

Published on October 05, 2020

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