The Tamil Nadu government on Monday chose option 1 of the two choices laid out by the Centre for the States to borrow money in lieu of the GST compensation dues, in the hope that the Centre would rework it to reflect a higher proportion of the actual loss in revenue of States.
The AIADMK government exercised the first option at the 42nd meeting of the GST Council held through video-conference. In August, the Centre offered two options to the States because it could not give the GST compensation on account of inadequate cess collections. But the Tamil Nadu Chief Minister had earlier rejected both options and insisted that the Centre borrow money and compensate the States, a stand that was not accepted by the Centre.
“Option 2 has been worked out to be completely unattractive and unacceptable to almost all States. In such circumstances and given the very limited options available, Tamil Nadu chooses Option 1 in the hope that it will be reworked to reflect a higher proportion of the actual loss in revenue of States,” Minister D. Jayakumar, deputed to handle GST issues, said at the meeting.
Since the State governments had pointed out at the last meeting chaired by the Union Finance Secretary that the assumption of 10% normal growth in Option 1 was “highly unrealistic and unwarranted”, Mr. Jayakumar said: “Hence, instead, revenue gap of States must be assessed based on an appropriate proportion of the total anticipated loss this financial year under Option 1.”
Even for the current fiscal, the partial release of compensation might be a compulsion but this should not be justified based on the presumptive loss solely on account of the introduction of the GST. “It is a fait accompli that given the fiscal situation, the States have to remain content with receiving only a portion of the compensation,” he said.
Under Option 1, an artificial distinction was being drawn between the GST implementation-based losses and the COVID-19-induced losses, in an effort to limit the total amount of borrowings in 2020-21. “Any attempt to carve out losses solely on account of the GST vitiates the delicately balanced pact between the Centre and the States that this Council has held so dear since the introduction of the GST regime,” Mr. Jayakumar noted.
However, he said, the clear and explicit statement in the note (circulated earlier) that under the operative sections of the GST (Compensation to States) Act, 2017, compensation was payable for the entire shortfall in revenue collection, even if it was not on account of the GST implementation, was heartening. The position was clarified by the Attorney-General and accepted by the Central government. “It has also been stated that the balance shortfall will be made good in subsequent years. It is important that this position is explicitly reiterated in a formal communication to the States,” the Minister said.
‘Grave urgency’
During 2020-21, for the period up to July 2020, a GST compensation of ₹12,258.94 crore was due to Tamil Nadu. “It is a matter of grave urgency that the GST compensation payments are made immediately to enable us to continue to battle against COVID-19,” he said. The Minister underlined that it had been Tamil Nadu’s consistent stand that the Centre had a moral and legal obligation to pay the compensation for the shortfall in GST collections.
He also recalled Tamil Nadu’s stand at the 41st GST Council meeting that the Centre could mobilise resources and lend the funds required to the GST Compensation Fund. “The loan could then be serviced through an extension of the GST Cess for a few years beyond 2021-22. This was a very reasonable and practical suggestion and was agreed to by almost all States,” he said.
The Group of Ministers (GoM), constituted for examining the issue of the IGST settlement for 2017-18, has finalised its report, which acknowledged that ₹4,321 crore was due to Tamil Nadu towards the IGST settlement. “I look forward to an immediate release of the dues of Tamil Nadu in one instalment as recommended by the GoM. This will bring succour to the State at this time of grave financial difficulty caused by the COVID-19 pandemic. I urge the Centre to accept the recommendation of the GoM and implement it immediately,” he said.
