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Centre’s GST compensation options ‘betrayal of spirit of cooperative federalism’: Punjab FM

Writing the letter against the backdrop of the recent GST Council meeting, Mr. Badal pointed out that the Centre is only recognising GST loss by assuming a 10% of the growth over the previous year and attributing the rest to the pandemic.

Raising concerns over the two options offered by the Centre surrounding the Goods and Services Tax (GST) compensation shortfall, Punjab Finance Minister Manpreet Badal has written to Union Finance Minister Nirmala Sitharaman terming the options as a betrayal of the spirit of cooperative federalism that formed the backbone of GST.

GST Council Meeting updates | Centre gives two options to States on GST compensation

Pointing out that Punjab is now the highest GST-deficit-State in the country, Mr. Badal wrote, “…Our revenue loss in Option 1 would still remain unpaid even after availing our share of the special window as well as the additional 0.5% of the fiscal deficit. There may be other States on similar footing. Leaving the latter, borrowing unprotected by any future revenue stream means the practical impossibility of such a borrowing, besides putting the State into a position of great peril. Option 2 is in breach of even what AG (Attorney General of India) has stated in his opinion. There is no rationale for the Centre to charge the cost of borrowings to the States.”

“We thus take both the options with great regret as a clear breach of the solemn and constitutional assurance by the Central government. We believe this as betrayal of the spirit of cooperative federalism that formed the backbone of the GST journey so far,” added Mr. Badal in the August 31 letter.

Digging deeper: The Hindu Editorial on GST compensation

Writing the letter against the backdrop of the recent GST Council meeting, Mr. Badal pointed out that the Centre is only recognising GST loss by assuming a 10% of the growth over the previous year and attributing the rest to the pandemic. “This makes the whole exercise of calculating losses arbitrary, one-sided and devoid of any legal justification. GST revenues were growing at about 4% in the pre-Covid year 2019-20. The GDP growth in 2019-20, of Q4 in particular, had also significantly slowed down. We believe that applying a rate of growth of 10% to project a higher revenue loss due to Covid-19 is over-simplistic, statistically incorrect, besides being legally unsound,” he wrote.

The GST of it

Mr. Badal suggested that an alternative a Group of Ministers (GoM) may be constituted to deliberate on the matter and make recommendations in a time-bound period of 10 days on different issues.

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