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Tamil Nadu AIADMK govt, flags concerns with Centre’s options over GST dues

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NEW DELHI: After over four non BJP-ruled States objected to Centre’s suggestion that states borrow to meet the revenue shortfall in the Goods and Services Tax (GST), Tamil Nadu AIADMK government, an ally of the Centre now has written to PM Narendra Modi that the GST options will “hurt spending by States on many crucial COVID 19 and non-COVID 19 related expenditure, and welfare programmes, deprive the states of adequate funds for essential work, and also affect the revival of the economy.”

TN CM Edappadi Palaniswami, in his letter has urged to the finance ministry to agree to a mechanism in which the government of India raised the required funds as a loan and “lends it to the GST Compensation Fund against future cess receipts, so that the GST compensation can be paid in full to the States in 2020-2021.”

The centre’s reasons asking the States to go for either of the two options are not “persuasive” and will substantially bring down the resources available to State governments for building infrastructure and running welfare programmes, he said.

The Centre’s suggestion that states borrow to meet the revenue shortfall in the Goods and Services Tax (GST) has been objected to by West Bengal, Kerala, Delhi and Punjab as of now. The AIADMK and the BJP fought 2019 Loksabha polls together, and assembly elections are scheduled in Tamil Nadu next year.

“Our stance has consistently been that the Government of India has a moral and legal obligation to pay the compensation for the shortfall in GST collections. We had also indicated that it was for the Government of India to find the necessary funds to compensate the States, including from the Consolidated Fund of India, if there was a shortfall in the cess collections,” Palanisami wrote.

The letter recalled the suggestion made by senior minister D Jayakumar who had urged the Centre to mobilise resources and lend the funds required to the GST Compensation Fund and that loan could be serviced through an extension of the GST Cess for a few years beyond 2021-22.

Both concerns are difficult for the States to consider and implement, the CM stated, adding that implementing the first option where States are being required to borrow from the market to make good the shortfall in compensation due “is administratively difficult to implement and more expensive.” “The argument that States borrowing for what is essentially a Government of India obligation is a seemingly better optical arrangement does not appear to be a strong or valid reason,” he said.

The CM, raising concerns over the Centre’s distinction between “Covid-19 and non Covid-19 losses,” has asked the Centre to ensure that the States get their full dues of the compensation in the current year itself, and reduce “neither the compensation payable nor the already announced and committed additional borrowing permissible to States of 2 percent of GSDP under the Atma Nirbhar Bharat stimulus package,” while also providing “a formal and categorical assurance “that any spillover of the compensation due will be paid in the period after March, 2022.

Officials pointed out that among the southern states, Andhra Pradesh, Kerala and Tamil Nadu faced maximum decline in GST revenue in the first quarter of the current financial year, compared to the same period last year. While Andhra Pradesh and Kerala faced 46% decline, Tamil Nadu’s fall was 45%, according to the data released by the finance ministry.

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