State FMs to meet Nirmala over GST cess payment shortly

Finance Ministers of several states are meeting Finance Minister Nirmala Sitharaman this morning urging her to urgently release their GST compensation cess payment as they were facing “financial emergency” due to non-payment of the amount in August and September. The Centre stares at defaulting on payment in October as well.

The finance ministers of Punjab, Rajasthan, Delhi and a few others are likely to meet Sitharaman and urge her to borrow the excess requirement and extend the cess to states beyond five year compensation period till their loans arising out of implementation of the new tax regime are repaid.

Today’s meeting is an unscheduled one before the GST Council’s next meeting on December 18. State FMs decided to reach a solution at the earliest as the revenues at their disposal is not enough.

Kerala Finance Minister Thomas Isaac said he would not be able to join the delegation due to prior commitments but expressed the hope that the Centre would concede what was due to states.

The unpaid compensation amount for three months could be well over Rs 60,000 crore, sources confirmed DH and said that even the BJP-ruled states were complaining but unable to come out in open with their grievance.

The Centre had on Monday sent letters to states expressing its inability to pay the cess amount even for the month of October as the revenue generation had dipped unexpectedly in the past few months.

The October GST collection went a little above Ra 1 lakh crore but in two months prior to that, there was a year-on-year decline in GST collection. The Centre has projected its GST revenue in 2019-20 at Rs 6.63 lakh crore, up 13.6% from the Rs 5.84 lakh crore collected in 2018-19.

“The state government has not so far received GST Compensation for October, pushing the treasury into severe ways and means crises. It is unfortunate that the union government is insensitive to the needs of state finance. Remember GST compensation is a statutory right of states,” Isaac had recently said expressing his disappointment.

When the GST subsumed 17 different central and state levies in July 2017, states were assured that they will be compensated for any loss of revenue for the first five years of the introduction of GST.

West Bengal Finance Minister Amit Mitra had recently said that the dues owed to the states and three UTs with Legislative Assemblies totalled about Rs 40,000 crore. But that was only for two months.

Punjab had to receive Rs 2,100 crore in GST compensation and together with Rs 2,000 crore arrears, its total dues were Rs 4,100 crore till September end.

GST comprises nearly 60% of the tax revenues of states. Many states are already facing deficits up to 50% of the total GST.

As a result, states are facing acute pressure on fiscals with some already resorting to ways and means or even overdrafts, the finance ministers had recently conveyed to the union finance minister.

Punjab Finance Minister Manpreet Singh Badal has said his state may approach the Supreme Court if the Centre fails to release the GST compensation to the state.