Karnataka seeks extension of GST compensation period

Karnataka Chief Minister H D Kumaraswamy on Thursday met Union Finance Minister Arun Jaitley in New Delhi and sought an extension of the GST compensation period till 2025, saying that the state's revenue deficit has widened to 20 per cent post-GST regime.

“The Central Government seriously consider extending the period of compensation to Karnataka beyond 2022 up to 2025 in the event of revenue trends not showing any substantial improvement in meeting the projected revenue,” the CM said in his memorandum to the Minister.

At present, the states are entitled to get compensation for the first five years since the implementation of Goods and Services Tax (GST) in 2017, that is till 2022.

"Although there is an improvement in the Goods and Services Tax (GST) collection in the state in the current fiscal, compared to the financial year 2017-18, the gap with protected revenue is "substantial" and may well continue beyond 2022," the CM said.

"During the VAT regime, Karnataka used to register 10-12 % of average growth every year. But post-GST, the revenue deficit is found to be 20 per cent against protected revenue," the CM said in a representation. 

All efforts are being made to minimise the revenue leak, but Karnataka has found certain fundamental structural reasons for this deficit such as current tax rates and less than expected contribution of services sector among others, Kumaraswamy said.

"It is true that States are guaranteed 14 % revenue growth every year upto March 2022 in terms of compensation. However, Karnataka like many other states, has many social sector and infrastructural commitments to improve the lives of its citizens. A drastic fall in revenue post 2022 would be a serious blow to these legitimate constitutional welfare efforts," he said.