Tamil Nadu Gasping for Funds as GST Compensation Remains Elusive

Chennai: The coffers of many state governments have run dry since the past several months with the pandemic-induced lockdown ruining the economy and unpaid GST compensation by the Centre due for several months. The implementation of Goods and Sales Tax (GST) has literally snatched away the rights of the state government in levying taxes. As a result, several state governments are left at the mercy of the Union government for revenues.

The Tamil Nadu Chief Minister had no option but to shoot a letter to the Prime Minister demanding the payment of compensation for the revenue loss. The CM referred to the 101st Constitutional Amendment Act and GST (Compensation to States) Act, 2017 and reiterated that the Union government must mobilise funds and lend to states. The letter has also demanded that the states get the full dues in the current year itself.

‘GoI HAS MORAL AND LEGAL OBLIGATION’

The state government has witnessed a continuous increase in the revenue deficit, which reflected in the recent budget as well. “The net outstanding debt by the end of March 31, 2021, is expected at Rs 4,56,660.99 crore and debt to GSDP ratio will be 21.83%, which is well within the norm of 25%”, said state Deputy Chief Minister and Finance Minister O Panneerselvam in his budget speech.

Given the large deficit, the TN government has been waiting for its share of the compensation, but to no avail. “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,” the CM wrote.

Venkatesh Athreya, economist and professor told NewsClick, “The state governments were forced to accept the GST on the condition that compensation for five years would be paid. The GoI must take loans and distribute to the state governments instead of forcing them to take loans.”

The letter also reminded the Centre that ‘no compensation has been released for the shortfalls in collections since April 1, 2020. As on date, a total sum of Rs 12,250.5 crore is due to Tamil Nadu as compensation for shortfall in GST collections, of which Rs 11,459.37 crore has accrued from April to July 2020’.

‘FM SUGGESTIONS UNACCEPTABLE’

Referring to the Finance Ministry’s suggestion on the state government to raise loans from the open market, including the Reserve Bank of India (RBI), the CM wrote, “I am very concerned about the two options that have been offered to states after the GST council meeting held on August 27, 2020.”

The state government in the GST Council meet has insisted that the Union government could mobilise resources and lend the funds required to the GST compensation cess fund and that loan could be serviced through an extension of the GST cess for few years beyond 2021-22.

Also read: Why Centre’s Stance on GST Compensation is Utterly Bizarre

“The Union government asking the states to take loans from the open market defies logic. The government is behaving like a money lender and violating the sovereign guarantee, which goes against the Constitution. The economy has not been ruined by the ‘act of God’, but by the terrible policies of the Modi government,” Athreya said.

‘PERMIT ADDITIONAL BORROWING’

The government relies largely on income from sale of liquor through the state-run Tamil Nadu State Marketing Corporation (TASMAC) and the Value Added Tax (VAT) on petroleum products. The lockdown has restricted these incomes, leaving the government gasping for funds. With the other incomes squeezed on the implementation of the GST, the autonomy of the states, too, has been affected.

The CM has also demanded borrowing one-third more compared with the 2019-20 levels and an untied special grant of Rs 1 lakh crore to be released to all the states as budgetary support, in addition to other specific grants.

The additional spending due to the COVID-19 pandemic has also hit the state governments. The state has claimed to have invested around Rs 7,000 crore to upgrade the health facilities and other related needs. The demand to sanction funds for the state from the PM-CARES has also yielded no results.

‘REVISIT GST STRUCTURE’

The country has been witnessing a steady drop in growth since the last quarter of 2018-19. With continuous attacks, including the demonetisation in 2016, followed by the implementation of GST next year, the economy has been shattered.

“It is highly pathetic to recollect that this government compared the introduction of GST to the freedom struggle. “The ham-handed design of the GST has proved to be a miserable failure. The implementation has also affected the federal structure of the nation and dented the autonomy of the states. It is time to rethink the GST rates as well,” Athreya said.

The economic policies pursued by the Narendra Modi government have affected the exchequer of the states, resulting in the hampering of the welfare measures for the poor and needy. The large claims of 'One Nation, One Tax' have dented the autonomy of the states and the federal setup, while the positive outcomes are yet to be seen, he said.

Also read: Non-BJP Ruled States Demand Centre to Borrow and Pay GST Compensation