Centre-state face-off likely at GST meet



The goods and services tax (GST) council meeting likely to be held in the second half of April is expected to be a stormy one, with several states set to push for an extension of GST compensation beyond June, according to state finance ministers.

However, the Centre remains reluctant to commit additional support to states for fear of upsetting its financial position.

Several people aware of the development said while states may press for an extension of GST compensation by two to five years at the forthcoming meeting, arguing that they may have to face substantial losses if not suitably compensated, the Centre is likely to oppose any such move.

The GST Council had, in the September meeting in Lucknow, decided to extend the compensation cess period till March 2026, but the collection was to be used “purely to repay back-to-back loans taken by the Centre between 2020-21 and 2021-22″ and not to further compensate states, finance minister Nirmala Sitharaman had said then.

The states are given full compensation for the first five years of the introduction of GST on the assumed revenue growth rate of 14% from the base year of 2015-16. Compensation cess is levied on luxury and sin items such as aerated drinks, coal, pan masala, cigarettes and automobiles over the peak rate of 28%. “The position remains the same as far as the Centre is concerned. There is no scope to extend compensation for states beyond June. The cess collection in the period extended till March 2026 will be utilized to repay the back-to-back loans. So, where does the compensation (to states beyond 2022) get paid from? The point is there is no cess available till March 2026,” said a senior government official. Also, the Constitution’s 101st amendment states that compensation has to be paid for five years until June 2022, he added.

Another central government official said the focus of the GST Council would be on increasing revenues post June, rather than depending on compensation. “Revenue-raising measures like correction of inverted duty, doing away with some exemptions could be explored. The group of ministers is looking at the rate rationalization exercise,” he said.

The GST Council was given a presentation on the options to increase revenues post June. The GST compensation cess collection for 2021-22 has been revised to 1.05 trillion from 1 trillion estimated in the budget last year. Mop-up from GST compensation cess is estimated at 1.2 trillion for 2022-23.

West Bengal’s minister of state for finance, Chandrima Bhattacharya, told Mint that the state would press for an extension of at least two years. “I have already personally raised it with the Centre. We have said that it will not be possible for the state to function without it.”

Kerala also sought an extension of the compensation period by a few years at an assumed revenue growth rate of 14%. Kerala finance minister K.N. Balagopal told Mint that the state is looking for a GST compensation extension beyond five years. “We will take it up during the next GST meeting,” he said.

This comes at a time the Russia-Ukraine war and the sharp escalation in oil prices are affecting India’s plans to merge the GST slab rates and make the indirect tax system simpler with just three broad rates, as reported by Mint earlier.

Delhi deputy chief minister and finance minister Manish Sisodia said, “all states surrendered their tax rights to facilitate the implementation of GST. If there was no GST on the central government’s initiative, then states would have the right to take care of their economy based on the requirement. When you get the rights surrendered, you have to ensure that states don’t starve,” Sisodia said.

Queries sent to a spokesperson of the Union finance ministry on Tuesday remained unanswered till press time.

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