Telangana Chief Minister asks PM Modi to reverse decision on GST shortfall borrowings

Telangana chief minister K Chandrasekhar Rao has urged Prime Minister Narendra Modi to reverse the decision of the GST (goods and services tax) Council asking the States to meet the shortfall in GST compensation through borrowings.
In a three-page letter to Modi on Tuesday, Rao asked the Centre to raise the borrowings and serve the debt – both principal and interest – from the cess collections.

This comes a day after the finance ministers of ten Opposition states aired their concerns over the options that the GST Council offered to the States to meet the shortfall in GST compensation.

The Telangana CM accused the Centre of violating the provisions of the GST Compensation Act by parking the surpluses in the Consolidated Fund instead of parking them in the non-lapsable Compensation Fund in the public account. The Centre used the surpluses to meet expenditures in 2017-18 and 2018-19 but was asking the States to borrow now that there is a deficit, said Rao.

In his letter Rao pointed out that the Centre delayed payments of GST compensation to the States since April despite a statutory mandate in the GST Compensation Act that “full compensation for the loss of revenue, on account of implementation of GST shall be paid on a bi-monthly basis.”

While the revenue collections of the states have significantly declined, their expenditure commitments have increased, said Telangana CM Rao, adding that “With broad fiscal policy being controlled by the Government of India, States are made to depend on the Union Government even to go for market borrowings.”

Asking the Centre to honour the statutory provisions of GST compensation in letter and spirt, Rao questioned the ‘artificial distinction’ made by the Centre between the loss of revenue on account of GST implementation and the impact of Covid. He said the States were also concerned over the unilateral decision of the Centre to apply 10% growth to arrive at the gap in GST revenue for the year 2020-21.

Rao pointed out that the states yielded more fiscal space to facilitate the introduction of GST, which has subsumed over 47% of the gross tax revenues of States as compared to only 31% for the Centre. While introduction of GST has left no buoyant source of taxes for the States, it has still left the Centre with buoyant sources like income tax, corporate tax, and customs duties, in addition to dividends from the RBI and central public sector undertakings, he said.

“In a situation such as Covid pandemic, the Centre instead of extending a helping hand, is denying the States their legally rightful claims,” said Telangana CM Chandrasekhar Rao, adding that the options given to the States to borrow to meet the shortfall in GST compensation cess “is only to deny the States the full benefit of the (Aatmanirbhar) package.”