Tamil Nadu CM writes to PM Modi over GST compensation of states

So far, no compensation has been released for the shortfalls in the revenue collection since April 1, 2020

Chennai: Tamil Nadu Chief Minister Edappadi K Palaniswami has written to Prime Minister Narendra Modi over GST compensation of States, stating that he is “very concerned about two options offered to States after 41st GST Council Meeting”.

“Our stance has been that the Government of India (GoI) has moral and legal obligation to pay compensation for the shortfall in GST collections,” he wrote.

The CM further stated we had also indicated that it was for the GoI 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. As a via media in the 41st GST Council meeting held on August 27, 2020, our representa8ive Thiru D Jayakumar has suggested that the GoI could 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. This was very reasonable and practical.

“My first concern is that in both the options suggested by the GoI, the states are being required to borrow from the market to make good the shortfall in compensation due. This is administratively difficulty to implement and more expensive,” CM Palaniswami wrote.

Further, the reasons being cited for such an arrangement are not persuasive. Whether the GoI borrows or the State Governments borrow, for rating agencies and others who monitor the macro-economic indicators, it is the overall General Government deficit and borrowing that is relevant. Hence, I reiterate Government of Tamil Nadu’s stance that the GoI should advance funds to the GST Compensation Cess fund if need be by borrowing in the market and service the debt by an extension of the compensation cess, he added.

“Further, to reduce the total amount of borrowing in 2020-21, an artificial distinction is being drawn between GST implementation based losses and COVID-induced losses. I am heartened by the clear and explicit statement in the note which has been circulated that under the operative sections of GST (Compensation to States) Act, 2017, compensation is payable for the entire shortfall in revenue collection, even if it is not on account of GST implementation and further that this position has been clarified by the Attorney General and is accepted by Centre,” CM Palaniswami wrote.

As you are aware one of the most crucial fiscal issues facing the nation currently is the payment of compensation on account of the shortfall in the revenue post-implementation of GST and to support the legislation based on the unequivocal commitment given by the GoI to compensate the States for any revenue loss. Such compensation is assured in the 101st Constitution Amendment Act and the GST (Compensation to States) Act, 2017, the Tamil Nadu CM wrote.

So far, no compensation has been released for the shortfalls in the revenue collection since April 1, 2020, he added.

“As on date, a total sum of Rs 12,250.50 crore is due to Tamil Nadu as compensation for the shortfall in GST collections, of which Rs 11,459.37 crore have accrues from April to July 2020,” CM Palaniswami stated.

“As you are aware, the States have suffered a severe loss in revenue in the wake of the COVID-19 pandemic and have also been at the forefront of the battle to prevent the spread of the disease,” he added.

“Considerable additional expenditure of nearly Rs 7,000 crore has already been incurred towards upgrading health facilities, providing medical supplies and towards relief measures for the most affected. For the economy to restart effectively, State Governments also need to ensure that regular budgetary expenditure on on-going schemes and programmes pick up. Hence, State Governments are in immediate need of resources,” Tamil Nadu CM wrote.