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    Punjab rejects central government's options on GST compensation shortfall

    Synopsis

    State finance minister Manpreet Badal has written to Union finance minister Nirmala Sitharaman communicating the decision while seeking clarity on several concerns raised by the state. “We thus take both the options with great regret as a clear breach of solemn and constitutional assurance by the Central government,” Badal said in his letters sent out on Monday. ET has seen a copy.

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    Punjab has formally rejected both options provided by the Central government to make up for goods and service tax (GST) compensation shortfall. State finance minister Manpreet Badal has written to Union finance minister Nirmala Sitharaman communicating the decision while seeking clarity on several concerns raised by the state.

    “We thus take both the options with great regret as a clear breach of solemn and constitutional assurance by the Central government,” Badal said in his letters sent out on Monday. ET has seen a copy.

    “We believe this is a betrayal of the spirit of co-operative federalism that formed the backbone of the GST journey so far,” he said, reiterating the demand for a dispute resolution mechanism.

    Alternatively a GOM (group of ministers) may be constituted to deliberate on the matter and make recommendations in a time-bound period of 10 days, he suggested.

    Badal flagged that states alone have very little role in the finalization of GST structure or tax rates, and future borrowings and repayment capacity will alter based on the decisions taken by the GST Council, where Centre has a decisive vote.

    “Any future dispute in relation to GST Compensation will have deleterious impact creating situations of defaults by states,” he cautioned.

    He pointed to the contradiction between the law and Centre’s suggestion of allowing states to borrow. As per the Act, all resources are credited to the compensation fund. “How can money borrowed by a state be credited to the compensation fund?” he questioned.

    He also sought clarity on the compensation calculation in the period after January 2021, since projections till the end of compensation period with reasonable assumptions would lead to a total revenue loss of over Rs 4.5 lakh crore. “This, together with interest, would require more than 4- 5 years to repay the borrowings rather than 2-3 years that is being believed,” he said.

    “It is also not clear when shall the impact of Covid-19 be agreed to have tapered off,” he noted.

    Badal also questioned the basis on which the government calculated the loss due to GST implementation, assuming 10% growth over the previous year and attributing the rest to the Covid 19 pandemic. “This makes the whole exercise of calculating loss arbitrary, one-sided and devoid of any legal justification,” he said.
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    1 Comment on this Story

    ivcu199051 days ago
    As agreed by Central it is required to compensate the revenue of States. If now Central is not ready to pay the dues and forcing the States to take loan for short fall and repay it with interest is not perfect. If such is the case let permit States to fix GST rate on their own because some States having products having highest tax rate while some others having products with low rate. Just passing of problems is no use at all. As Central Government is the guardian of entire country it is the duty to give funds to State Governments as per procedure laid in the GST. Let central government raise bonds and give the money to the States without interest with the condition of repayment by State Governments over a period of 20 years. As the present situation an unexpected one let both the Governments must join together and both are required sacrifice something for the benefit of our nation. Please note that it is our personal opinion and thinking differs from person to person and from time to time.
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