KCR urges PM Modi to reverse decision on GST shortfall borrowings

Hyderabad (Telangana) [India], September 1 : Telangana Chief Minister K Chandrasekhar Rao (KCR) on Tuesday wrote a letter to Prime Minister Narendra Modi, stating that the decision of asking states to meet the shortfall in GST compensation through borrowings can be reversed.
In a letter written to Prime Minister Narendra Modi, Rao has expressed his concern regarding the modalities for meeting the shortfall in the GST (goods and services tax) compensation payable by the Centre.
This comes a day after the finance ministers of several states aired their concerns over the options that the GST Council offered to the States to meet the shortfall in GST compensation.
Highlighting that he had an expectation that there would be long term gains and more investments following the introduction of GST, Rao said: "It is my earnest request that the decisio9n of asking the States to meet the shortfall in the compensation through borrowings may be reversed. As an alternative, the Centre can borrow the entire shortfall amount based on the strength of the receipts of Cess amount."
"The entire debt servicing- both principal and interest can be paid from the cess collected for such an extended period beyond 2022, as the GST council may decide," he added.
KCR further accused the Centre of delaying payments of GST compensation to the State since April despite a statutory mandate in the GST Compensation Act that full compensation for the loss of revenue, on account of implementation of GST, shall be paid on a bi-monthly basis.
There have been long delays in the payment of compensation and the states have been paid GST compensation since April 2020, Rao said.
In April 2020, Telangana suffered a revenue loss of 83 per cent whereas COVID-19 pandemic related expenditure has increased, as per the letter.
"However, the states were denied Central Sales Tax (CST) compensation and Telangana state was deprived of Rs 3,800 crores on account of Revenue loss by CST."
CST is a type of indirect tax which is imposed on goods that are sold from one state to another state.
Urging the Centre to honour the statutory provisions of GST compensation in letter and spirt, Rao questioned the 'artificial distinction' made by the Centre between the loss of revenue on account of GST implementation and the impact of COVID. He said the States were also concerned over the unilateral decision of the Centre to apply 10 per cent growth to arrive at the gap in GST revenue for the year 2020-21.
He further pointed out that the states yielded more fiscal space to facilitate the introduction of GST, which has subsumed over 47 per cent of the gross tax revenues of States as compared to only 31 per cent for the Centre. "While introduction of GST has left no buoyant source of taxes for the States, it has still left the Centre with buoyant sources like income tax, corporate tax, and customs duties, in addition to dividends from the RBI and central public sector undertakings," he said.
"In a situation such as COVID pandemic, the Centre instead of extending a helping hand, is denying the States their legally rightful claims," said the Chief Minister, adding that the options given to the States to borrow to meet the shortfall in GST compensation cess "is only to deny the States the full benefit of the (Aatmanirbhar) package."
The two borrowing options to meet the GST compensation requirement for 2020-21 consequent to the discussions in the 41st meeting of the GST Council held on August 27 has been communicated to states which could, in turn, communicate their preference within seven working days, the Finance Ministry said on August 29.
The first option provides a special window to states in consultation with the Reserve Bank of India (RBI) to provide Rs 97,000 crore at a reasonable rate of interest. This money can then be repaid after five years from the collection of cess.
The second option is that the entire GST compensation gap of Rs 2.35 lakh of this year can be met by states in consultation with the RBI.