Consider more legally viable options for GST dues to states: Delhi CM Arvind Kejriwal urges PM Narendra Modi

New Delhi: Chief Minister CM Arvind Kejriwal on Tuesday (September 1) wrote to Prime Minister Narendra Modi over Goods and Services Tax (GST) compensation to states. The letter said that the two options given by the Ministry of Finance, which require the states to borrow loans and then meet the repayment liabilities, will put an onerous burden on the states.

Kejriwal wrote the letter following deliberations on the options given by the central government to the states at the 41st GST Council meet on August 27. The Council had 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.

Appealing to the Prime Minister, Delhi CM said the GST Council should consider authorising the Centre to borrow on its behalf and extend the period of collection of cess beyond 2022. 

Terming the GST reform as a landmark reform in the indirect tax structure of India, Kejriwal 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 further said that all the states will overcome the unprecedented situation that the Covid-19 pandemic has brought before the country by working collectively, adding that the GST 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).

Kejriwal said, "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 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. 

He requested the Prime Minister for a more sustainable and viable option, and said, "Considering the above situation, it is my humble submission that the Government of India may like to consider a much more simpler and legally sustainable option of borrowing by the Government of India 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 with effect from 2022."

Notably, the Centre and non BJP-ruled states are at loggerheads over the financing of the Rs 2.35 lakh crore GST shortfall in the current fiscal. Of this, as per Centre's calculation, about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is the impact of COVID-19 on states' revenues.

Earlier on Monday, five states -- Punjab, Delhi, Kerala, Telangana and West Bengal -- that are not ruled by the BJP rejected the Centre's proposal at the GST Council meeting.

Last week, the Centre gave two options to states to borrow either from a special window facilitated by the Reserve Bank of India or from the market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022.