States seek increase in GST share, reduction in Central cess, surcharges if compensation deadline is not extended

Poornima Joshi |Richa Mishra | | Updated on: Jun 29, 2022
Union Finance Minister Nirmala Sitharaman
chairs the 47th meeting of the GST Council, in Chandigarh, on Wednesday

Union Finance Minister Nirmala Sitharaman chairs the 47th meeting of the GST Council, in Chandigarh, on Wednesday | Photo Credit: -

Chhattisgarh suggests increase in state GST in 80:20 ratio, Kerala wants it changed to 60:40

New Delhi, June 29 States, including the ones ruled by the BJP, are hopeful of 14 per cent protected revenue being extended beyond the June 30 deadline after their strong pitch for the same at the GST Council meeting on Thursday. However, in case the deadline is not extended, at least two States – Kerala and Chhattisgarh – have come up with different formulation for altering the 50 per cent CGST and SGST.

Kerala, for instance, has suggested enhancing the sharing of GST from the present 50:50 ratio to a 60:40 ratio between the States and the Union, respectively. Chhattisgarh, on its part, believes that if the protective revenue provision is not continued, then the 50 per cent formula for CGST and SGST should be changed to SGST 70-80 per cent and CGST 20-30 per cent.

Talking to BusinessLine, Kerala Finance Minister K.N Balagopal said: “I don’t know if the deadline is not getting extended. We certainly hope this issue will be resolved because almost every State has requested an extension. Some of us thought it should be five years, others suggested two years… The Finance Minister [Nirmala Sitharaman] gave us a patient hearing. I’m very hopeful it would be resolved.”

‘States finances in strain’

In a letter to the Finance Minister and Chairperson of the GST Council Nirmala Sitharaman, the Kerala Finance Minister said: “We are meeting at a time when the adverse impact of the Covid pandemic is yet to recede. The impact has been extremely severe and the general government finances have been hit hard. In this context, we need to take not of the fact that the States are facing a harder fiscal squeeze. There has been a continuous reduction in the share of Kerala from the divisible pool as well, which causes a fall in Central share through the Finance Commission’s devolutions. In addition, the Finance Ministry has initiated a move to truncate the open market borrowing ceilings of the States,” said Balagopal.

He contended that with rigid borrowing conditions and downwardly inflexible expenditure, even if the revenue grows in a normal manner, States’ finances will face liquidity constraints. He also pointed out that the share of Central surcharges and cess have been steadily increasing from around 10 per cent to 20 per cent over the last decade, which has resulted in reduction of the share of the States from the divisible pool as a percentage of the Gross Tax Revenue of the Union.

“Given these facts, the period of GST compensation should be extended for five more years. Also, enhance the revenue sharing of GST from the present 50:50 ratio to 60:40 ratio between the States and the Union, respectively, and phase out the unusually higher rates of cess and surcharges under Article 271,” said the Kerala FM,

‘Adopt new formula’

Chhattisgarh Finance Minister, TS Singh Deo, also suggested that the share of the States should increase, albeit by a higher ratio than the one Kerala FM suggested. He has come up with a solution in case the protected revenue provision is not continued. “If you are not extending this regime, then the 50 per cent formula for CGST and SGST should be changed to SGST 70-80 per cent and CGST 20-30 per cent. I have mentioned it in my communication to the Finance Minister because, unfortunately, because of my contracting Covid-19, I could not attend the council meeting,” Singh Deo told BusinessLine.

BJP-ruled Uttarakhand, too, has pitched for extension. “We consider the PM as our own, from our own state. We are a young state with limited resources. I have apprised the FM of our difficulties and I am sure a way will be found to compensate us,” said Uttarakhand FM Premchand Aggarwal.

West Bengal hopeful

Dr Amit Mitra, Principal Advisor to the Chief Minister of West Bengal and Finance Ministry (holding Cabinet rank), expressed hope that the compensation deadline would be extended.

“It is clear from the GST council meeting that many States across political parties, including the ruling party, have expressed deep concern about their fiscal distress due to loss of revenues for two years, including the strong position taken by my colleague from West Bengal. Due to this resonation across States, I am hopeful that the Centre will extend compensation by 3-5 years. The country is holding its breath for a bold decision by the Union Finance Minister and Prime Minister,” said Mitra while talking to BusinessLine.

Published on June 29, 2022
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