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‘States denied their legitimate claims over GST compensation’

K V Kurmanath Hyderabad | Updated on September 01, 2020

In a letter to Modi, KCR saysStates have lost their fiscal space

The Telangana Government, the first State in the country to pass the GST Bill, has flayed the Centre for its attempts to “deny the States their legally rightful claims” in getting GST compensation. The States are starved of finances because of Covid, while their expenditure has gone up significantly as they fight the pandemic. They need more funds from the resource-rich Centre, Telangana Chief Minister K Chandrashekhar Rao said.

Rao added that the (borrrowing) options given to the States to meet the shortfall are not in accordance with the Act. “Instead of extending a helping hand, the Centre is denying the States their rightful claims. Linking these options to additional borrowings allowed under the Atmanirbhar package is only to deny 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 urged the Centre to borrow the entire shortfall amount based on the strength of Cess receipts. The entire debt servicing – both principal and interest – can be paid from the cess collected for such an extended period, beyond 2022 as the GST Council may decide.

“There is an imperative to strengthen cooperative federalism in this crisis situation so that we can not only overcome it but emerge as a strong nation,” he said.

He said the States have lost their fiscal space due to the introduction of the GST. The GST had subsumed over 47 per cent of the gross tax revenue of the States compared to only 31 per cent of the Centre. Post GST, the States are left with no major buoyant taxes of their own, while the Centre was left with 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 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 ₹13 a litre. The estimated additional revenue from the increase in the cess on petroleum products alone is over ₹2 lakh crore a year,” he pointed out.

This, he argued, has preempted the States from increasing the VAT on petroleum products (which are not in the GST list).

Published on September 01, 2020

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