Kerala has urged Prime Minister, Narendra Modi to intervene and advise Finance Ministry not to go ahead with the ‘plans of transferring the burden’ of the Good and Service Tax (GST) compensation on the States and instead follow the ‘letter and spirit’ of the Goods and Services Tax (Compensation to States) Act, 2017.
Transferring the obligation of GST compensation to the State through their borrowing is not in accordance with the ‘spirit of understanding’ reached between the Centre and the States during the discussions preceding the constitutional amendment for bringing in GST, Chief Minister Pinarayi Vijayan said in a letter to the Prime Minister on Wednesday.
“The two borrowing options sent by the Ministry of Finance, Government of India, to the States on August 30, 2021, go against this and needs to be withdrawn,” the Chief Minister said.
Conveying the concerns of Kerala with regard to the payment of the GST compensation to the States, Mr. Vijayan has pointed out that the States were assured of an annual compound growth of 14 per cent in the GST revenue with 2015-16 as the base year during the initial five years of implementation when GST was implemented from July 1, 2017.
This was incorporated in the Goods and Services Tax (Compensation to States) Act, 2017. Moreover, Section 7 of the Act says that the compensation shall be payable to the States at the end of every two-month period. Unfortunately, Mr. Vijayan said, since 2019-20, the provision has not been adhered to.
From April 1, 2020, no compensation has been released to the States. The Chief Minister has pointed out to Mr. Modi that the amount to Kerala during April to August financial year 2020-2021 is ₹7,000 crore.
Criticising the argument that the part of the loss is unprecedented as a result of COVID-19, Mr. Vijayan said the revenue loss and the expenditure pressures have been much greater for the States and this ‘artificial distinction’ that is being sought to be drawn would exacerbate the severe fiscal stress of the States.
The Chief Minister said the compensation promised and the statutory backing given to the same was an important factor which prompted the States to accept uniform rates for supply of goods and services despite the ‘rate fall inbuilt’ in the structure of the GST.
