Stalin lauds non-NDA CM's stance on GST compensation, says 'Non-payment is a travesty'

Appreciating non-NDA CM's stance on GST compensation, DMK working President MK Stalin on Thursday wrote and urged them to vote against the two borrowing options proposed by the Union government at the GST Council Meeting on October 5. This comes after the GST Council in its meeting failed to reach a consensus on ways to compensate the states for the loss of tax revenue. The panel will meet again on October 12 to thrash out the state compensation issue, Finance Minister Nirmala Sitharaman said after a marathon eight-hour meeting.

Around 21 states accepted one of the two borrowing options suggested by the Centre, but 10 did not agree. In his letter, Stalin mentioned the CAG Report for the fiscal year 2018-2019 and said that the report shows that the Union Government has "illegitimately transferred funds of Rs 47,272 crores" from the "GST compensation account to the Consolidated Funds of India" during 2017-18, and 2018-19.

"Your efforts in standing united to uphold federalism are greatly appreciated. When the Union has moral and legal obligation to pay the States, proposing we should borrow to substitute for their non-payment is a travesty of both States' rights and Justice," he wrote in the letter.

"The possibility of such illegitimate transfers for the past fiscal years (2019-2020) remains," he added.

DMK chief further urged the Chief Ministers to hold the Union government to its duty and its commitments to the CAG, and asked the government to reimburse the pending amount immediately, and initiate State's compensation payments from this deposit.

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Row over borrowing options

The Finance Ministry suggested that states could borrow Rs.97,000 crore (the revenue shortfall arising on account of GST implementation and not taking into account COVID-19) with the entire principal and interest repayment of the debt to be met through cess collection in subsequent years. Furthermore, the states have been allowed to borrow an additional 0.5% points under the FRBM Act. But if the states opt to borrow the entire amount of Rs. 2.35 lakh crore, only the principal amount shall be repaid from the cess. In such a scenario, the states will have to bear the interest burden. 

Several states such as Delhi, Jharkhand, West Bengal, Tamil Nadu, Kerala, Telangana, Maharashtra and Chhattisgarh have urged the Centre to rethink the GST compensation options. Recently, the CAG observed that the Modi government retained Rs.47,272 crore of the GST Compensation Cess collected in the Consolidated Fund of India during 2017-18 and 2018-19. This came in for a lot of criticism from opposition parties. 

READ: Surcharge on cars, tobacco extended beyond June 2022; GST Council splits on state compensation

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