Telangana Chief Minister K Chandrashekar Rao on Tuesday urged Prime Minister Narendra Modi to take back the decision asking the states to meet the shortfall in GST compensation through borrowings from the Reserve Bank of India (RBI). He said the Centre is denying the states their rightful claims instead of extending a helping hand during the Covid pandemic.
“As an alternative, the Centre can borrow the entire shortfall amount based on the strength of the receipts in cess amount. The entire debt servicing both principal and interest can be paid from the cess collected for an extended period, beyond 2022, as the GST council may decide,” KCR suggested in his letter to the PM.
In the letter to the Prime Minister, Rao said the Centre was abdicating its responsibility of fully compensating the states by taking recourse to legal opinion and was violating the Goods and Services Tax (GST) Compensation Act.
Stating that states are in the forefront of fighting Covid and reviving the stalled economic activities, the Chief Minister told Modi that they need more resources than the Centre.
The Telangana Rashtra Samithi (TRS) chief said it was imperative to strengthen cooperative federalism in this crisis situation so that we can not only overcome it but emerge as a strong nation.
KCR voiced concern over the modalities for meeting the shortfall in the GST compensation payable by the Centre. He pointed out that Telangana fully supported the introduction of GST knowing very well that it would result in a loss of revenue in the short term, keeping in view the national interest. “Our expectation was that there would be long term gains and more investments following the introduction of GST.”
“In April 2020, we suffered a revenue loss of 83 per cent whereas Covid-19 pandemic related expenditure has increased. We are faced with the difficult task of meeting the expenditure through front loading of market borrowings, taking resort to ways and means advances and overdrafts. With broad fiscal policy being controlled by the Government of India, states are made to depend on the union government even to go for market borrowings,” he said.
“Further, an artificial distinction is being made between the loss of revenue on account of GST implementation and impact of Covid. Such a distinction is not provided for in the Act.” He said the statutory provisions for GST compensation have no meaning if the Centre does not honour them in letter and spirit.
Rao pointed out that the states yielded more fiscal space to facilitate the introduction of GST, which has subsumed over 47 per cent of the gross tax revenues of the states as compared to only 31 per cent for the Centre. While the introduction of GST has left no buoyant source of taxes for the states, it has still left the Centre with buoyant sources like income tax, corporate tax, and customs duties, in addition to dividends from the RBI and central public sector undertakings, he said.
He said the expectations of the states that with the introduction of GST ,the share of cesses and surcharges which are not shareable with states, will come down has been totally belied.
“The Centre has resorted to levy of cesses on imported goods and increased the cess on petrol and diesel by Rs 13 per litre. The estimated additional revenue from the increase in the cess on petroleum products alone is over Rs 2 lakh crore per annum. This has pre-empted the states from increasing the VAT on petroleum products,” he added.
The Telangana CM wrote the letter a day after the finance ministers of Telangana and five other states held a video conference and decided to forge unity on the GST compensation issue.
The finance ministers of Telangana, West Bengal, Kerala, Chhattisgarh, Delhi and Punjab, arrived at a consensus that the Centre should take loans instead of asking the states to do so and pay them the compensation.
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