Amit Mitra, principal adviser to the West Bengal chief minister, has urged Union finance minister Nirmala Sitharaman to increase the products and providers tax (GST) compensation to states for one more three to 5 years past June 2022, to offer reduction to the states combating fiscal penalties of the Covid pandemic.
“We note with dismay an ominous sign that the Centre has decided to withdraw the goods and services tax (GST) compensation to the states from July 2022. Such a decision, if taken, is completely contrary to what was envisaged at the time of adoption of GST,” Mitra wrote in a letter to Sitharaman.
Under the GST compensation mechanism, which is constitutionally assured, state governments are assured 14% annual income progress for the primary 5 years after the July 1, 2017 launch of the tax.
The Empowered Committee of the Finance Ministers of the States met in Kolkata on June 14, 2016 to deliberate on whether or not a GST may very well be adopted by the states and the Centre. All the states, throughout political events, determined to undertake GST provided that the Centre has to compensate the states for the income loss for 5 years.
“You will appreciate that in the year 2016, when the said decision was made, none of us could have predicted that the world would be hit by the Covid pandemic of this magnitude. Nor could we have guessed that the economy of the world, and of course, that of India, would be under unprecedented stress, due to this pandemic,” Mitra wrote.
The full lockdowns adopted by partial ones, over the last three years, have severely undermined the idea of the choice of the empowered committee taken in 2016, with nice hope and expectations, he stated.
The proceeds from the GST compensation cess fell far in need of the degrees required to make up for the state’s income shortfall from the protected stage in FY21 and FY22. The Centre needed to resort to taking loans below a particular RBI window to bridge the deficit. Servicing of those loans will itself require the cesses to be relevant on choose demerit items until March 2026, the Centre has identified.
However, Mitra stated: “Though we are in the third year of the pandemic, the impact of the pandemic continues to adversely affect our economy. The supply chain in manufacturing, services and agriculture is still broken. The MSME sector is struggling to survive and the informal/unorganised sector, which provides employment to more than 90% of the labour force, remains severely fractured.”
“The unforeseen battle against this pandemic has put the fiscal health of the states under huge stress. On top of that, the massive inflationary pressures have severely aggravated and impaired the economies of states, which today are struggling with massive fiscal burdens. The GDP has not yet reached the pre-pandemic level and is not likely to reach a desirable trajectory any time soon.”
Sitharaman has made it clear that the GST compensation was for the preliminary 5 years after the GST roll-out. The GST Council, chaired by her, will possible deliberate later this month on the demand by many states that the compensation interval be prolonged by 2-5 years.
Source: www.financialexpress.com”