Karnataka CM meets FM, demands extension of GST compensation to states for 3 more years

In the meeting, the CM informed Sitharaman that the state GST collection has not yet stabilised in view of Covid-19

Amid fall in state revenue and GST collection in view of Covid-19 crisis, Karnataka Chief Minister Basavaraj S Bommai on Thursday demanded the Centre to extend the GST compensation period to states beyond 2022, for three more years.

After a meeting with Union Finance Minister Nirmala Sitharaman, Bommai said he also discussed the GST (Goods and Services Tax) dues to the tune of Rs 11,000 crore to be paid to Karnataka in installments.

"The dues that were to be paid from July 2022 are being advanced through installment from this year. Along with this, I discussed extending the GST compensation to states beyond 2022," he told reporters after the meeting.

Read more: Interstate river water disputes: Karnataka CM Basavaraj Bommai holds meeting with legal team

In the meeting, the CM informed Sitharaman that the state GST collection has not yet stabilised in view of the Covid-19 crisis, and it would be more helpful in this ongoing revenue crisis if the GST compensation to states is extended for three more years.

Karnataka is one of the best performing states since the enactment of GST in 2017. "However, the Covid crisis since the last financial year has brought the state revenue collection down including the GST collections," he said in a representation made to the FM.

Keeping in mind the revenue crisis in all states, the Centre had provided the GST compensation loan for the 2020-21 fiscal and it has also been extended for the current fiscal.

"However, the compensation loan would support the states for only the current financial year, but the impact made by the Covid on revenue collection will be carried forward for next few years also. So, it will take time for GST revenue collection to reach the protected amount," he said.

"I request you to kindly reconsider the state's request on extending the GST compensation," the CM stressed.

In the meeting, Bommai -- who is also a member of the GST Council -- also flagged that the 15th Finance Commission in its final report for 2021-26 recommended reduction in Karnataka's share in tax devolution to 3.647 per cent, as compared to 4.71 per cent recommended by 14th Finance Commission.

Since Karnataka has seen the steepest cut of 23 per cent because of the reduction in the devolution share, he requested the FM to reconsider the criteria of horizontal devolution for sharing of resources between the states.

The CM also informed that the state government had submitted an additional memorandum to the Commission in this regard. But the Commission has not considered the state's request.

"This has severely impacted Karnataka compared to other southern states," he noted.

The CM also brought to the notice of the FM that the central government has not considered the 15th Finance Commission recommendation to award state specific grants of Rs 6,000 crore to Karnataka for holistic improvement of water bodies of Bengaluru and for Peripheral Ring Road.

"... the government of India in its explanatory memorandum has not considered the Finance Commission's recommendation. This would be a set back to the state which is already strained due to severe cuts in tax devolution," he said.

Bengaluru, the IT and start-up hub of the country, has a major contribution to the services sector of the national economy. And the city has further potential to attract more investments if the critical infrastructure is improved, he said.

That apart, the NABARD assistance given to different groups including SC and ST women, Self Help Groups and for infrastructure purposes-- was also discussed in detail with the FM, he added.

Bommai on the second day of his visit to Delhi is also scheduled to meet Union Health Minister Mansukh Mandaviya and Commerce and Food Minister Piyush Goyal.