Tamil Nadu seeks extension of GST compensation period by at least two years beyond June 2022

The state has highlighted that its revenues are yet to recover and a huge revenue shortfall could be expected in the absence of the compensation.

The Tamil Nadu government on Thursday urged the Centre to extend the period of goods and services tax (GST) compensation by at least two years beyond June 2022. The state has highlighted that its revenues are yet to recover and a huge revenue shortfall could be expected in the absence of the compensation.

Tamil Nadu chief minister MK Stalin met Prime Minister Narendra Modi in Delhi and handed over a memorandum detailing issues, including GST compensation to the states. In the last five years, there has been a gap between the actual GST revenues realised by the state and the revenue guaranteed. This trend was visible even before the pandemic and the gap has widened after the pandemic, Stalin pointed out.

This year, considering the Covid situation, the Centre continues funding of GST compensation by its open market debt arrangement to meet out shortfall in GST compensation cess collection. Accordingly, out of total compensation of Rs 21,781 crore was receivable by the state in 2021-22, but up to February 2022, the state has received a loan amount of Rs 8,095 crore. The balance compensation of Rs 13,505 crore was pending as on February 28, 2022, in the form of GST arrears to Tamil Nadu. “We urge that this amount may be released at the earliest,” Stalin said.

 

Through the enactment of the GST (Compensation to the States) Act, 2017, the states have been assured a revenue growth of 14% in GST with reference to the revenue collections made in the year 2015-16 and any shortfall thereon will be met using GST compensation cess collected by the Centre.

It may be pointed out that for FY 2020-21, the states were informed that the cess collections in the compensation cess fund were expected to be adversely impacted due to the economic impact of Covid-19. Accordingly, the states were given two borrowing options in lieu of GST compensation for FY 2020-2021.

As per option-1, Tamil Nadu had received a loan amount of Rs 6, 241 crore and grant amount of Rs 5,161 crore during FY21. The Centre has released previous year arrears of Rs 7,235.8 crore in FY22, including a Rs 539-crore arrear amount for 2018-19, the chief minister said.

On the issue of sharing proceeds of cess and surcharge with the states, the Tamil Nadu government has pointed out that the levy of cesses and surcharges must be reversed immediately, and all such cesses and surcharges must be merged with the basic rate of tax so that the states receive their legitimate share of the revenue.

It is the serious concern of the state that the size of the divisible pool of taxes is steadily shrinking as the government of India is increasingly resorting to levy of cesses and surcharges which are not shareable with the states.

The 14th Finance Commission in its report has observed that the cesses are meant to be fully utilised for the purposes for which they are levied. The Comptroller and Auditor General of India has also drawn the attention to the lack of transparency and incomplete reporting in accounts on the utilisation of amounts collected under cesses. Similarly, surcharges are meant to be levied only for short periods and pointed out the states concern on the levy of cesses and surcharges.

Source:::FINANCIAL EXPRESS,  dated 01/04/2022.