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States Pitch For Continuation Of GST Compensation For Another 5 Years

GST compensation to states for revenue shortfall resulting from subsuming of local taxes such as VAT in the uniform national tax, Goods and Services Tax (GST) will end in June next year.

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State governments, including Chhattisgarh, Kerala, Delhi and West Bengal on Thursday pressed for continuation of the GST compensation for another five-year period in view of the financial stress created by the outbreak of the pandemic. 

The demand for extension of the GST cess regime among others was made by several state finance ministers at a pre-budget consultation called by Union Finance Minister Nirmala Sitharaman here.

Besides, many states also demanded raising the share of the Union government in the Centrally Sponsored Schemes (CSS).

Currently, the central government and state government share in some CSS is 60:40 while in others it is 75:25.

GST compensation to states for revenue shortfall resulting from subsuming of local taxes such as VAT in the uniform national tax, Goods and Services Tax (GST) will end in June next year.

There has been a loss of revenue to states due to the GST tax system, the Centre has not made arrangements to compensate the loss of revenue of about Rs 5,000 crore to states in the coming year, so the GST compensation grant should be continued for the next five years after June 2022, Chhattisgarh Chief Minister Bhupesh Baghel said.

'Many states have asked for this. We have also asked to extend GST compensation. If it is not extended, the finances of many states will be in a bad shape,'' Delhi Deputy Chief Minister Manish Sisodia said after the pre-budget consultation.

The GST Constitutional Amendment Act provides for the Centre compensating states for five years for loss of revenue arising on account of implementation of GST, and during the transition period, states' revenue is protected at 14 per cent per annum over the base year revenue of 2015-16.

GST, which subsumed indirect taxes like excise duty, service tax and VAT, was rolled out on July 1, 2017 and the compensation window ends on June 2022.

Pointing out that Chhattisgarh has received less share of central taxes by Rs 13,089 crore in the Union Budget of the last three years, Baghel demanded that the share of central taxes be given to the state completely in the coming year.

He also demanded that Rs 4,140 crore deposited with the Centre at the rate of Rs 294 per tonne on coal mining from coal block companies should be transferred to Chhattisgarh soon.

Rajasthan Education Minister Subhash Garg said extension of compensation cess window till 2026-27 is a valid demand of states and the Centre should consider it.

He also demanded reduction in import duty on gold and silver from 10 per cent to 4 per cent.

''Our most significant demand is that the Centre's share in centrally-sponsored scheme has gradually reduced and states share has increased. Earlier share would be 90-10 and now it is 50-50 or 60-40, our request is that it should go back to 90-10,'' Garg said.

Rajasthan also requested that all irrigation and water work projects should be brought under the Centre's ambit and declared central schemes.

West Bengal also pitched for extension of GST compensation for another five years citing two years of difficult time due to COVID-19.

COVID crisis was not anticipated when this was fixed, said West Bengal Urban Development & Municipal Affairs Minister Chandrima Bhattacharya.

Asked if BJP ruled states too demanded extension, she said, some of them were in favour of extension.

For CSS, the Centre should increase its share, she said, adding, there are various areas from where the central government can actually augment finance but it is very difficult for states because the area is very short.

With regards to state borrowing, she said that additional borrowing window should be without any condition.

Tamil Nadu Finance Minister P Thiaga Rajan said he has demanded extension of GST compensation cess regime for at least two years because of COVID-19.

''We have said at least two years that we lost due to COVID-19. Many states have asked for five years,'' he said.

He also made a case for raising share of the Centre in the CSS.

Kerala has also demanded extending GST compensation period by another five years. The current period will end in June 2022.

State's Finance Minister K N Balagopal, who participated in the meeting, said the broad focus of most states was on having packages to boost economic activities.

Many states also mentioned about the GST compensation issue, the minister told reporters in the national capital.

Kerala has also demanded increasing the allocation under CSS to compensate the ''steady decline in the state's inter-se share of devolution''. Besides, it has pitched for allowing state-specific grants as recommended by the Finance Commission.

The meeting was also attended by Union Minister of State for Finance Bhagwat K Karad and other senior officials.

According to an official statement, Union Finance Secretary T V Somanathan welcomed all the participants to the deliberation and highlighted the importance of the consultation meeting.

''Most of the participants thanked the Union Finance Minister for financially supporting their states/Union Territories during the worst months of pandemic, by enhancing borrowing limits, providing back to back loans to states, and through special assistance for capital expenditure,'' it said.

The participants also gave numerous suggestions to the Union Finance Minister for inclusion in the Budget speech, it said, adding, the Finance Minister thanked the participants for their inputs and suggestions towards Union Budget 2022-23 and assured them that each proposal will be examined.