Centre abdicating responsibility, KCR tells Modi on GST compensation

Hyderabad: Telangana Chief Minister K. Chandrasekhar Rao (KCR) on Tuesday asked the Centre to reverse its decision entailing states to meet their Goods and Services Tax (GST) shortfalls through borrowings. In a sharply worded letter to Prime Minister Narendra Modi, KCR also stated that the Centre is “abdicating its responsibility” on the mater. 

Explaining how the Centre’s decision impacts states, KCR pointed out that Telangana witnessed a revenue loss of a staggering 83%, while COVID-19 related expenditure had increased in the state. 

“We are faced with the difficult task of meeting the expenditure through front loading of market borrowings, taking resort to ways and means advances and overdrafts. With broad fiscal policy being controlled by the Government of India, States are made to depend on the Union government even to go for market borrowings,” said KCR in his letter. 

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The Telangana chief minister also reminded Modi that on the insistence of (different) states, it is clearly stipulated in the GST Compensation Act that full compensation for the loss of revenue, on account of implementation of GST shall be paid to on a bi-monthly basis. KCR, in his letter, also stated that it is a “matter of grave concern” that the Centre has taken a “unilateral” decision to apply 10% growth rate to meet the GST shortfall for the financial year 2020-21. 

It may be noted that four more states, all non-BJP ruled states, also rejected the Centre’s proposal on GST shortfalls, which was taken a GST Council meeting. The council had offered states two borrowing options: that states could either borrow ₹97,000 crore from the Reserve Bank of India (RBI), or borrow ₹2.35 trillion from the market under different terms.

All the four states, i.e. Kerla, Punjab, West Bengal and Delhi, decided that the Centre should not push its constitutional obligation on state governments. In his letter to Modi, KCR also pointed out that implementation of the GST has subsumed over 47% of the gross tax revenue of states, as compared to only 31% of the Centre’s. 

Moreover, he stated that with the introduction of GST, states are left with no major taxes, while the Centre still has sources like Income Tax, corporation tax and custom duties. In addition to those, the Centre, noted KCR, has access to more non-revenues such as dividends from the RBI, Central Public Sector Undertakings, etc. 

“The Centre is abdicating its responsibility of fully compensating States by taking recourse to legal opinion.  The Centre has violated the provisions of the GST Compensation Act by parking the surpluses in the Compensation Fund in its Consolidated Fund instead of parking them in the non-lapsable Compensation Fund in the Public Account and using the surpluses for meeting its expenditure in the years 2017-18 and 2018-19,” read KCR’s letter. 

Remaining the union government of “cooperative federalism”, the Telangana chief minister reminded the Centre that so far all the GST Council’s decisions have been taken unanimously. Moreover, it may also be noted KCR had earlier also written a letter to finance minister Nirmala Sitharaman seeking higher GST compensation due to shortfall in collections for the financial year 2019-20.

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