GST compensation delay: Finance ministers of five states flay Centre; urge Nirmala Sitharaman to release funds immediately

The finance ministers of five states — Delhi, Punjab, Rajasthan, Kerala and West Bengal — have expressed concerns over the worsening financial condition and criticised the Centre for delaying the release of GST compensation cess for the months of August and September. The finance ministers of these five states also appealed to Union finance minister Nirmala Sitharaman to look into the matter personally and release the compensation without any further delay. They, in a joint statement, have highlighted the deepening financial crisis in their respective states due to the Centre’s alleged delay in paying the Goods and Services Tax (GST) compensation cess.

Finance Ministers of West Bengal, Delhi, Kerala and Rajasthan issue a joint statement on delay in payment of GST compensation. @msisodia says we were promised to be compensated at the rate of 14% annually; states surrendered their powers on taxation based on this#GST #States pic.twitter.com/KuDMGVm1I6

— CNBC-TV18 (@CNBCTV18Live) November 20, 2019

They have also alleged that shortage of funds has resulted in bringing the activities in their states to a grinding halt. In their joint statement, the finance ministers said no explanation whatsoever has been furnished for this delay and as a result, states are facing acute pressure on fiscals and some are already resorting to overdrafts. “GST comprises nearly 60 percent of the tax revenues of the states. Many states are already facing deficits up to 50 percent of the total GST. Such huge deficits have the potential to disrupt the budget and planning processes in a host of areas literally bringing activities of the States to a grinding halt,” it said. [caption id=“attachment_4799391” align=“alignleft” width=“380”] Representational image. News18.[/caption] It was recalled that the assurance of GST compensation was a necessary enabler in states agreeing to subsume their fiscal sovereignty into GST. This was preceded by long deliberations within the Empowered Committee where many states had apprehensions about being able to obtain uninterrupted compensation, it added. “It was only after the required provisions for compensation were incorporated in the Constitution that States agreed to join the GST. The current delay has shaken the confidence of the States who have so far supported GST in a spirit of rare bonhomie. Despite many challenges from time-to-time States have extended their support to all major decisions of the GST Council,” the statement said. They also suggested that the matter should be placed on the agenda of the next meeting of the GST Council and a healthy mechanism be evolved to provide compensation in future with due urgency and judiciousness. Kerala’s finance minister Thomas Isaac has said that the state is yet to receive compensation of Rs 1,600 crore due to the state. “This is a Centre-engineered crisis and as a result, all the states are in distress. Kerala’s borrowing cut by Rs 6,500 crore. All the states forced to cut their budget,” said Isaac. He further said that the share of the Central taxes has sharply come down adding Centre’s GST collections are falling due to rate cuts. Isaac alleged that substantial amount of  GST compensation funds have been diverted by the Centre. “It has never happened in the history of India. Something drastic has to be done,” said the Kerala finance minister. Delhi finance minister Manish Sisodia said, “We were promised to be compensated at the rate of 14 percent annually. States surrendered their powers on taxation based on this promise.” He said that the Rs 2355 crore is due to Delhi government in the form of GST compensation and this is a big number. Punjab finance minister Manpreet Singh Badal says that if the compensation doesn’t come today, the state will be in overdraft. “Including compensation, arrears amount is over Rs 4,100 crore. I will be in overdraft if dont get fund today,” Badal said. Rajasthan also expressed similar concerns if the Centre further delayed the release of the GST compensation cess. The state said its finances are on the verge of collapse. West Bengal finance minister Amit Mitra said, “We are collectively appealing to the Union finance minister (to compensate).” All the states are in distress if this compensation which is due to them is not given, he said. Mitra said, “We thought we will make an appeal to Union Finance Minister (Nirmala Sitharaman) saying that she must personally look into this and not violate the constitutional provisions as passed by the Parliament of India.” It is a dangerous situation, there is no precedence before, he said, adding this is the first time in history that there has been a delay. “States have not received GST compensation for August and September which is against constitutional amendment where it was stated clearly that states when they fall below 14 percent rate of growth of their GST (revenue), they will get compensation by the Centre. So far we have been receiving compensation,” he said. As far as West Bengal is concerned, the pending amount stands at Rs 1,500 crore, he said. — With PTI inputs