GST Compensation

 

The issue of GST has always been at the forefront of political allegations when it comes to accusing the central government of not providing enough assistance needed by the state governments.

 

Claiming that payment of GST is a legal responsibility of the central government, deputy chief minister of Maharashtra, Ajit Pawar has said that the central government should take the loan and pay the compensation to the state governments.

 

Even in the meeting of the GST council, Pawar has continued their consistent pattern of complaining of the MVA government in the state of not getting enough financial aid from the central government amidst the inevitable difficult financial phase owing to the lockdown.

 

However, all of these inefficient voices of the MVA government went tight-lipped when the data exhibiting the direct and indirect assistance from the central government to the Maharashtra state government was released in the interim. When the MVA government failed in creating a public perception on the above mentioned baseless allegations, now they have directed their entire force in blaming the central government on the issue of GST compensation.

 

However, before making some irresponsible accusations, it is indispensable for everyone to understand the basis of the GST compensation and its provisions in regards to the payment of the same to the state governments while understanding the role of the central government.

 

With the intent of keeping a single tax system by reducing the tax burden in the country, the then Atal Bihari Vajpayee led government came up with the concept of GST. The then central government appointed a committee under the chairmanship of economist Dr. Vijay Kelkar. This committee in 2005 recommended GST with a view to have a single tax system across the country.

 

The Manmohan Singh-led UPA government announced that the GST will be introduced by April 2010. However, a common consensus could not be achieved between the state governments on the issue of compensation to be given to the states in case a financial loss was incurred in the process of tax collection.

 

However, it was Modi government’s decisiveness and inclusivity which encouraged all the state governments to come to a consensus and introduce the GST in absolute union.

 

The positive consequence of this is that the tax rate on various goods and services came down from average of 24% to 17 per cent. All the staunch critics accusing the central government must understand that the central government in these issues cannot unilaterally take any decisions. It has to be taken in consideration with all stakeholders in the GST council which has been constituted for these purposes. The Finance Ministers of all the states act as members of the Council. The GST Council has the power to recommend laws, regulations and tax rates on goods and services tax. A decision can only be made if any proposal has the support of at least two-thirds of the members.

 

Now if the issue of compensations were to be analyzed, if a state is receiving one lakh crore of Rupees and 90, 000 crore from GST, then according to the GST (Compensations to States) 2017 Act, the central government is obligated to give Rs 10, 000 cr to the state government. This compensation is paid through cess received from inter-state transactions. This compensation has been paid by the Center for two and a half years since the enactment of the Act without any friction. However, since the end of March 2020, the entire economic cycle of the country has come to a crisis mode owing to the lockdown which was announced due to the COVID-19.

 

There has also been a steep decline in the revenue collection at the level of central government since the last 4-5 months. Referring to the GST Act, the central government could have easily said that giving compensation will not be possible. However, the central government instead of keeping hands off the trouble has in fact taken a holistic view and has assured assistance to the state governments.

 

As on date, the central government is obligated to give a total of 3 lakh crores of rupees to various state governments out of which Rs 65, 000 crore will be collected through cess. The question is of the remaining 2, 35, 000 crores. Now the central government has given two options to the state governments by which the state governments can get the balance compensation.

 

As per the projected calculations the amount payable through this cess collections was 97, 000 crore. However it has now come to 23 lakh 35 thousand crores. According to the first option, the central government has proposed to arrange the balance compensation amount through RBI loan where principal and interest will be given by the centre and the repayment will start in five years. In addition, this borrowing shall not reflect in the borrowing of the balance sheet of the states.

 

According to the second option, the central government will pay the principal of Rs 2 lakh 35 thousand crore from the open market, but the states will have to pay the interest and this will have to be mentioned in the state’s balance sheet.

 

For this, the Center has also increased the borrowing limit of the states by 0.5 per cent. Both of these options are pragmatically based. However, the MVA government has disapproved of all of the above assistance. The state government incomprehensively demands that everything must be given by the center.

 

In the current times of crisis like situation, the Maharashtra state government must act on the basic foundations of the federal structure and explore the options for them along with the helping hand extended by the central government instead of asserting the entire pressure and the financial burden on the central government.

 

At the end of March 2020, the Center received Rs 95,000 crore through cess. However, the Center has given a return of Rs 1 lakh 65 thousand crore. In this amount, the Center has given the highest return of Rs 19,200 crore to Maharashtra. With these facts and figures, the supercilious righteousness of the Maharashtra state government stands nothing but absolutely exposed.

 

Given the situation on the Chinese border over the past few months, the central government also had to increase defense expenditure. Despite the central government’s financial difficulties, the Center is regularly providing free food, grain and gas cylinders to the poor and needy during the lockdown.

 

he assistance amount from Pradhan Mantri Kisan, Jandhan schemes is being deposited directly in the bank account, additional Rs. 1000 is being given disbursed directly to the bank accounts of the elderly, widows and the disabled.

The central government has not transferred the responsibility of managing the funds required for the implementation of these schemes to anyone or has not suspended the implementation of the schemes as well.

 

Such an extraordinary situation is an exception. In such times, states should also shoulder their responsibilities. The state’s 2020-21 budget is 4 lakh 30 thousand crore. The share of GST is about Rs 50,000 crore. Given the size of the state budget, the share of the amount is not very large.

 

Apart from the amount due by the central government, the government should first state its expenditure planning about the remaining Rs 3 lakh 80 thousand crore. Without doing so, the alliance government has started trying to brainstorm on the amount that has to come from the center.

 

On one hand while the MVA government explicitly claims the central government as the head of the family, on the other hand, it is shying away from the self responsibilities as a family member. These things only expose their hypocrisy.

 

The fact of the matter is that the Maharashtra state governments unlike other states have not helped the people of Maharashtra in any way. Instead, they have only created chaos by their way of handling the situation. States like Karnataka, Madhya Pradesh, Uttar Pradesh, Telangana have declared various packages for the benefit of their citizens. However, Maharashtra government has only moved away from taking responsibilities and to hide the same they are playing the compensation card of the GST.