Tamil Nadu Chief Minister Edappadi K Palaniswami on Monday wrote to Prime Minister Narendra Modi seeking the disbursement of the full compensation for the Goods and Service Tax (GST) shortfall for the state. Dissatisfied with the Union government's decision in providing the GST compensation, in a categorical statement, the Chief Minister said that he was concerned about the two options provided to the states in the GST council meeting and said that the Centre should ensure that the states get full dues by this year end.
“My first concern is that in both the options suggested by the Government of India, the States are being required to borrow from the market to make good the shortfall in compensation dues. This is administratively difficult to implement and more expensive. Further, the reasons being cited for such an arrangement are not persuasive.” Edappadi wrote.
He added, “Whether the Government of India borrows or the State Governments borrow, for rating agencies and others who monitor the macro-economic indicators, it is the overall General Government deficit and borrowing that is relevant. The argument that States borrowing for what is essentially a Government of India obligation is a seemingly better optical arrangement does not appear to be a strong or valid reason. Hence, I reiterate the Government of Tamil Nadu's stance that the Government of India should advance funds to the GST Compensation Cess fund, if need be by borrowing in the market and service the debt by an extension of the compensation cess.”
On August 27, the Centre offered two borrowing options to the States to make up for the GST compensation cess shortfall. In the first option, States can either borrow the full compensation deficit of Rs 2.35 lakh crore, which includes revenue loss due to transition to GST and also the economic slowdown caused by COVID-19, from the markets, facilitated by the Centre and the Reserve Bank of India, or the shortfall that’s purely due to GST implementation of Rs 97,000 crore through a special window.
The Chief Minister further said that Tamil Nadu agreed to the implementation of GST and provided support to the legislation due to the assurance of the government to provide compensation for the revenue loss of the state. But, no compensation has been released for the shortfall in revenue collection since April 1, 2020, he said.
“As on date, a total sum of Rs 12,25,050 crores is due to Tamil Nadu as compensation for shortfall in GST collections, of which Rs 11,459.37 crore has accrued from April to July 2020. As you are aware, the States have suffered a severe loss in revenue in the wake of the COVID-19 pandemic, hence state governments are in immediate need of resources,” Edapadi stressed.
“Our stance has consistently been that the Government of India has a moral and legal obligation to pay the compensation for the shortfall in GST collections,” he said.
Seeking the intervention of the Prime Minister, Edappadi made four demands:
Agree to a mechanism in which the Government of India raises the required funds as a and lends it to the GST compensation fund against future cess receipts, so that the GST compensation can be paid in full to the States in 2020-21.
Ensure that the States get their full dues of the compensation in the current year itself, and reduce neither the compensation payable nor the already announced and committed additional borrowing permissible to States of 2% of GSDP (Gross State Domestic Product) under the Atma Nirbhar Bharat stimulus package in any circumstances.
Provide a formal and categorical assurance that any spillover of the compensation due will be paid in the period after March 31, 2022.
Relax the conditionalities attached to the permission to be accorded by the Government of India to States to borrow under the Atma Nirbhar Bharat scheme.
The other states which have rejected the Centre’s decision include West Bengal, Kerala, Delhi and Punjab.