States should stand firm, reject Centre's options on GST compensation, says P Chidambaram

The former finance minister said the states should not borrow as the liability to provide GST compensation as well as the onus to find resources fall on the Centre

Press Trust of India October 06, 2020 16:14:53 IST
States should stand firm, reject Centre's options on GST compensation, says P Chidambaram

File image of P Chidambaram. PTI

New Delhi: Senior Congress leader P Chidambaram on Tuesday complimented the states that rejected the two options given by the Centre to bridge the gap in the GST compensation cess and asked them to stand firm at the next meeting of the GST council on 12 October.

The former finance minister said the states should not borrow as the liability to provide Goods and Services Tax (GST) compensation as well as the onus to find resources fall on the Centre.

"I compliment the 9-10 states that stood firm and rejected the two options given by the central government to bridge the gap in the GST compensation cess.

"The liability to provide the GST compensation to the full extent falls on the central government, as reluctantly admitted by the FM yesterday. Naturally, the onus of finding the resources also falls on the central government," he said in a series of tweets.

"It is unfair and unjust to ask state governments to borrow the money. States must stand firm at the next meeting on 12th October," Chidambaram said.

At its meeting on Monday, the GST Council 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.

The council was divided on political lines, with 10 states ruled by non-BJP parties opposing the Centre's proposal of states borrowing to meet the shortfall in receipts.

The state compensation issue appears headed for voting in the council, with the option chosen by the majority being implemented.

Sitharaman said 21 states accepted one of the two borrowing options suggested by the Centre but 10 did not agree.

When the GST was introduced in July 2017, the states were promised a 14-per cent incremental revenue over their last tax receipts in the first five years. This was to be done through a levy of a cess or surcharge on luxury and sin goods, but the collections on this count have fallen short with the slowdown of the economy since the last fiscal.

To make up for this, the Centre has suggested that the states can borrow against future compensation receipts.

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