Kerala on Saturday rejected the two options proposed by the Centre for Goods and Service Tax compensation and asked the government to take loan and clear dues, The Hindu reported.

“We have decided to inform the Centre in writing that the state cannot agree to the two options put forward in the GST council on August 27,” state Finance Minister Thomas Isaac told reporters at a press conference in Thiruvananthapuram district. “Kerala wants the Centre to take loan and provide GST compensation and this has the approval of the Chief Minister Pinarayi Vijayan and other ministers.”

Finance Minister Nirmala Sitharaman at the GST Council meeting had said that the crisis facing the states is an unforeseen “act of God”, referring to the coronavirus pandemic. The Centre offered two options for borrowing by states to meet the shortfall, and has given them seven days to consider the proposal. As per its estimates, the states’ GST revenue gap in 2020-’21 will amount to about Rs 3 lakh crore, while cess collections are only projected to reach Rs 65,000 crore, leaving a shortfall of Rs 2.35 lakh crore.

The first option is to provide a special borrowing window to states, in consultation with the Reserve Bank of India, to provide Rs 97,000 crore at a reasonable interest rate. The other option is to meet the entire GST compensation gap of Rs 2.35 lakh crore this year itself after consulting the central bank.

Issac said both the options will lead to financial loss for Kerala and castigated the Centre for “betraying” the state. “This shows the mindset of the Centre,” he added. “It could have been resolved easily. But, the Centre has made it a big issue of the federal system. Even in the GST Council, except two BJP ruled states, all other states wanted the Centre to take loan and disburse it to them. The views of the states in the GST council were ignored.”

Issac added that Kerala will take the lead to arrive at a consensus on the matter by discussing with other states. “A video conference will be held with other state finance ministers on Monday afternoon,” he said. “Separate memorandum will be submitted by the states. But, we are trying to reach a common ground and ask the Centre to avail loan to provide GST compensation. It is not clear if the BJP ruled states will stick to their stance. A unified stand will be aired in the GST Council.”

Earlier in the day, former Finance Minister P Chidambaram also said that the options the Centre had given to counter the shortfall in GST collection were unacceptable. On Thursday, Deputy Chief Minister Manish Sisodia had said Central government’s refusal to pay GST compensation to states was the “biggest betrayal” in the history of federalism in India. He demanded that the Centre should take a loan from the Reserve Bank of India on behalf of the Delhi government.

Meanwhile, the Centre on Saturday promised states that their GST dues will be cleared despite the shortfall in cess. It said the Union finance secretary and the expenditure secretary will hold an online meeting on September 1 to answer queries of the states on two options that they have mooted.

“The government of India stands by the statement of [former Finance Minister] Shri [Arun] Jaitley and is actively working with the states to work out such an arrangement,” a statement said. “The government of India will support extension of the compensation cess for such period as may be necessary to completely discharge any arrears of compensation.”

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