New Delhi: Following a deliberation on the options given by the Centre to the states at the GST Council meet, Chief Minister Arvind Kejriwal on Tuesday wrote a letter to Prime Minister Narendra Modi, stating that the two options that are given by the Finance Ministry which require the states to borrow loans and then meet the repayment liabilities, will put an onerous burden on the states.
Appealing to the Prime Minister to consider a legally viable option to tide over the COVID-19 economic crisis, Mr Kejriwal said that the GST Council should consider authorising the Centre to borrow on its behalf and extend the period of collection of cess beyond 2022.
The GST council had on August 27 offered states with two options to tide over their GST revenue shortfall as the GST cess collected from items such as cars and tobacco was not adequate to compensate them this financial year.
The Centre specified that the state governments could borrow either via a special window it will facilitate through the Reserve Bank of India (RBI) or raise debt from the market.
Terming the GST reform as the landmark reform in the indirect tax structure of India, Mr Kejriwal in the letter stated that the assurance of the GST compensation to states to meet the shortfall in GST collections is one of the pillars on which the entire GST edifice rests.
He also said that all the states will overcome the unprecedented situation that the COVID-19 pandemic has brought before the country, by working collectively.
In his letter Mr Kejriwal said, “It is in the background that I would like to submit that the two options of borrowing presented by the Ministry of Finance, Government of India which primarily require the states to borrow and then meet the repayment liabilities will put an extremely onerous burden on the states which are, as it is, reeling under the financial crisis due to the shortfall in the revenue collections and an increased commitment of expenditure emerging from COVID-19 response.”
“The Goods and Services Tax (Compensation to States) Act, 2017, very clearly provides for compensation to the States for the loss of revenue arising on account of the implementation of the GST in pursuance of the provision of the Constitution (101st Amendment Act, 2016),” read the letter.
“To create an artificial distinction between loss occurring due to the implementation of the GST and those occurring due to COVID-19 pandemic goes against the very spirit of the Compensation Act and will lead to a creation of a trust deficit between the Centre and the States, wherein in future, the States will be hesitant in coming together to achieve more such larger common national goals, as was done through the implementation of GST,” the letter said.
Mr Kejriwal said that the options proposed by the Centre will lead to a cumbersome process of borrowing by the States, crediting the debt amount to the GST compensation fund, “to which legally all the compensation fund has to be credited in terms of the Section 10 of the GST (Compensation Act, 2017) and thereafter release of such funds as may be due to the States from the Compensation Fund. The servicing and ultimate repayment of a loan through the States will also be similarly cumbersome and circuitous.”
Requesting the Prime Minister for a more sustainable viable option, Mr Kejriwal said, “Considering the above situation, it is my humble submission that the Government may like to consider a much more simpler and legally sustainable option of borrowing by the Central Government to the full extent of the requirement of compensation in the year 2021 and 2022, to be serviced and repaid by the future collection of cess w.e.f 2022.”
“For this purpose the GST Council may consider to authorize the Government of India to borrow on its behalf and extend the period of collection of cess beyond the year 2022. I am informed this was the consensual opinion of majority of the States during the deliberations held in the 41st GST Council meeting,” said the CM.
Mr Kejriwal stated that if this option is exercised, it will be acceptable to all the states and the states will be obliged to the Centre, for supporting them in such a situation and helping the states to tide over the financial crisis arisen due to Covid-19 pandemic.