Seven Opposition-ruled states and Union Territories held a meeting with Finance Minister Nirmala Sitharaman on Wednesday to demand pending compensation under the Goods and Services Tax regime, reported Business Standard. They urged that funds due for four months since August be released as soon as possible.
Punjab, Delhi, Puducherry, Kerala, Madhya Pradesh, Rajasthan and Chhattisgarh pointed out that as much as Rs 50,000 crore was lying “unutilised” in the compensation fund even as the states wait for their money. Kerala even warned of approaching the Supreme Court over the matter.
The GST Act promises states enough compensation from the Centre to keep their annual revenue growth 14% for five years despite any likely loss due to the implementation of the indirect tax regime. Most prevalent indirect taxes were subsumed by the new GST structure, which came into effect on July 1, 2017, and states are eligible for the compensation till 2021-’22.
The meeting came days after the GST Council expressed concern about the Centre’s ability to meet the compensation needs of states due to lower tax collections in recent months. It wrote a letter to states, seeking suggestions to deal with the situation. On November 20, Kerala, West Bengal, Delhi, Rajasthan and Punjab, had issued a joint statement raising concerns about the matter.
“States have a huge responsibility and compensation is part of law,” Punjab Finance Minister Manpreet Singh Badal told The Indian Express after the meeting. “Government of India is under obligation to pay. We don’t like to keep coming to Delhi frequently. We have handed over our financial sovereignty to government, so we are embarrassed that we have to keep asking for our money.”
Kerala Finance Minister Thomas Isaac said he was “deeply disappointed” with the meeting. “...States’ constitutional right of GST compensation is non-negotiable,” he said in a tweet. “If necessary Kerala government will approach the Supreme Court under Article 131.”
Delhi’s Deputy Chief Minister and Finance Minister Manish Sisodia alleged that the Centre was deliberately holding back the money. “At the time of GST rollout, we were told states will benefit and that’s why states surrendered their tax rights with the Centre,” he said. “Centre had guaranteed compensation at a particular growth rate. Now when states are asking for it, we are not being given. It’s not like money is not there. About Rs 50,000 crore is lying as cess collections, but the Centre has held it back.”
Madhya Pradesh Minister for Commercial Tax Brajendra Singh Rathore said the GST compensation money was their right. “If we do not get back the money that we collect, it goes against the basic structure of GST,” he added. Rajasthan minister Subhash Garg agreed with Rathore.
Union Finance Minister Sitharaman assured the states of compensation payment but she neither specified any timeline nor any amount. “All of us are duty-bound to safeguard the interest of states,” she added.
The GST Council is scheduled to meet on December 18. The upcoming meeting of the council will be the first that will seriously consider increases in tax rates, according to Mint. The council has in the past reduced tax rates on various products.