The Centre on Monday said it had released Rs 35,298 crore for states and Union Territories as compensation for the Goods and Services Tax framework, just days before a GST Council meeting in which the matter was certain to come up.
The GST Council, which features representatives of every state and the Centre, is set to meet on December 18. The council meetings tend to look at issues around the implementation of the GST as well as questions about various tax rates.
But Wednesday’s meeting would have been the first since several states publicly complained about the Centre reneging on its commitment to provide a compensation for the revenue that was foregone when they agreed to move to the GST system. The GST Act promises states enough compensation from the Centre to keep their annual revenue growth at 14% for five years, no matter what the actual collections under the system are.
Seven Opposition-ruled states and Union Territories held a meeting with Finance Minister Nirmala Sitharaman earlier this month, demanding that the compensation amounts be released to states immediately. Kerala even threatened to take the matter to the Supreme Court.
That meeting itself came after the GST Council wrote a letter to the states on December 4, expressing concern about the Centre’s ability to pay the compensation it had promised and asking for suggestions on how to deal with the situation.
The concerns around GST compensation come at a time of a major economic slowdown coupled with a severe shortfall in tax collections by the Centre.
In an interview with ET Now, Sitharaman was asked what she makes of comments by states that it is embarrassing for them to have to demand what is their due. “I do not disagree with them if they say that it is embarrassing,” she told the channel. “Yes, it will be embarrassing and I do not want them to feel embarrassed because it is not their fault, but nor is it personally my fault. I would rather give them yesterday than today and there are obviously reasons and I have elaborated on all this earlier. I am not denying it is their right but I am also making clear I am not reneging on that, stats will be given.”