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Centre denying states their legitimate claim over GST compensation: Telangana

K V Kurmanath Hyderabad | Updated on September 01, 2020

Telangana Chief Minister K Chandrashekhar Rao

In letter to PM, KCR says ther is a need to strengthen cooperative federalism in crisis situation

The Telangana Government, the first State to pass the GST Bill, has flayed the Centre for its attempts to "deny the States their legally rightful claims" in getting GST compensation. While the finances of States have been hit hard by the pandemic, their expenditure has gone up significantly. They need more funds from the resource rich Centre, it says.

Telangana Chief Minister K Chandrashekhar Rao said the (borrrowing) options given to the States are not in accordance with the Act. "Instead of extending a helping hand during the pandemic, the Centre is denying the states their rightful claims. Linking these options to additional borrowings allowed under the Atmanirbhar package is denying the states the full benefit of the package," he said.

In a letter to Prime Minister Narendra Modi on Tuesday, he asked the Prime Minister to reverse the decision to ask the states to meet the shortfall in compensation through borrowings. He asked the Centre to borrow the entire shortfall amount based on the receipts in the Cess amount. The entire debt servicing - both principal and interest - can be paid from the cess collected for the extended period beyond 2022, as the GST Council may decide.

"It is imperative that cooperative federalism is strengthened in this crisis situation, so that we not only overcome it, but emerge a strong nation," he said.

He said the state has lost the fiscal space to facilitate the introduction of GST. The GST had subsumed over 47 per cent of the gross tax revenue of the states as compared to only 31 per cent of the Centre. Post GST, the states are left with no substantial taxes of their own, while the Centre has other revenue streams such as income tax, corporate tax and Customs duties.

"Besides, it also has non-tax revenues in the form of dividends from the RBI and several public sector undertakings. The Centre is endowed with more resources to help the states," he said.

Cess on petrol

The Chief Minister said the states expected a reduction in the share of cesses and surcharges (the states do not get any share from these cesses and surcharges) after the introduction of the GST. "The Centre has resorted to levy of cesses on imported goods and increased the cess on petrol and diesel by Rs 13 a litre. The estimated additional revenue from the increase in cess on petroleum products alone is over Rs 2 lakh crore a year," he said.

This, he argued, has pre-empted the states from increasing VAT on petroleum products (which are not in the GST list).

Published on September 01, 2020

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