Tamil Nadu CM writes to PM Modi over GST compensation of states; cites difficulty

Opposing Centre's two-options to meet the GST compensation required by the States,  Tamil Nadu Chief Minister Edappadi K Palaniswami has written to Prime Minister Narendra Modi over GST, stating that he is "very concerned about two options offered to States after 41st GST Council Meeting". The Centre on Thursday placed before the GST Council two options for borrowing by states to meet the shortfall in GST revenues, pegged at Rs 2.35 lakh crore in the current fiscal.

Reasoning out his concern, the Tamil Nadu CM stated that they had also indicated that it was for the GoI to find the necessary funds to compensate the states, including from the Consolidated Fund of India if there was a shortfall in the cess collections.

"Our stance has been that the Government of India (GoI) has moral and legal obligation to pay compensation for shortfall in GST collections. We had also indicated that it was for the GoI to find the necessary funds to compensate the states, including from the Consolidated Fund of India if there was a shortfall in the cess collections. As a via media in the 41st GST Council meeting held on August 27, 2020, our representa8ive Thiru D Jayakumar has suggested that the GoI could mobilise resources and lend the funds required to the GST Compensation Fund and that loan could be serviced through an extension of the GST Cess for a few years beyond 2021-22. This was a very reasonable and practical," the letter read.

Further stating the difficulty and expense in implementation, the Chief Minister stated that both the options suggested by the GoI, the states are being required to borrow from the market to make good the shortfall in compensation due.

READ: Centre places before states 2 options for borrowing to meet GST revenue shortfall

Earlier in the day, Chhattisgarh CM Bhupesh Baghel wrote to the Union Finance Minister urging that the Union Government should arrange the amount required. Baghel reasoned that if the State Government obtains the amount through a loan, then the entire burden will fall on them.

READ: Sonia Gandhi lashes out, claims 'Powers trying to shut youth's voices' amid NEET & GST row

Centre's two options to States

The Centre has calculated the compensation requirement by the states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the GST regime. Revenue Secretary Ajay Bhushan Pandey said of this, Rs 97,000 crore is on account of GST shortfall, while the rest is due to the impact of COVID-19 on the economy. Centre has reportedly refused to pay mandatory GST compensation of 14% for the current year due to COVID-19 pandemic.

To alleviate state's GST stress, Revenue Secretary Ajay Bhushan Pandey said a special window can be provided to the states at a reasonable interest rate for the borrowing of Rs 97,000 crore - the amount can be repaid after five years (of GST implementation) ending 2022 from cess collection.

The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window. "States have been given seven days' time to think over the proposal," Pandey said.

(With inputs from ANI)

READ: Chhattisgarh CM writes to FM Sitharaman opposing Centre's options for GST Compensation

READ: Asking states to borrow is 'skewed idea': Deve Gowda on GST shortfall