The States are agitated about the undue delay by the Centre in paying them the GST compensation, especially as they’re starved of funding for fighting the COVID-19 pandemic.
In 2017 the GST scheme worked smoothly as collections under the cess far exceeded the compensation demand. Therefore, the Compensation Fund built up a surplus of about Rs 47,000 crore in these two years. A problem arose last fiscal (FY20) when the cess collections fell in need of the compensation demand by the maximum amount as R70,000 crore.
The states’ anxiety is compounded by the finance minister’s statement in her budget speech that, starting this year, compensation payments to states are going to be limited to collections under the cess.
The Controller General of Accounts, GST cess collections was Rs 14,482 crore in the first half of the present fiscal, compared to Rs 24,613 crore within the corresponding quarter of last fiscal a shortfall of over 40%. In the current situation when the pressing need is to stimulate the economy, the primary option of expanding the cess, which can be a retardant on the economy, another option of GST is that Council borrowing from the market is questionable and the final option is that allowing states additional borrowing limits is hardly tenable.
In GST, States feel aggrieved on many counts. First, to enable a transition to GST, they need to yield more fiscal space than the Centre. Second, states believed that the introduction of GST would put an end to the egregious practice of the Centre levying cesses and surcharges. According to the Union Budget of 2018-19 increased rates of education and health cesses and imposed a financial aid surcharge on a variety of imported goods, in 2019-20 they raised the road cess on petrol and diesel by Re 1 per liter and in 2020-21 they introduced a health cess on imported medical devices.
The present year the cess on petrol and diesel has been further increased per litre & States feel, justifiably, that rather than levying cesses, the Centre should have increased the essential rates so that they too got a share of the extra collections.
As the centre has not been sensitive towards the state’s fiscal woes the states are extremely distressed about the burden of pandemic has disproportionately fallen on their shoulders.
It is reported that the opinion of the law office is that the Centre isn’t legally obliged to pay the total compensation. The Centre might not have a legal obligation, but it certainly incorporates a duty. In moving the GST process forward the states have been very accommodative right from the beginning and the Centre needs to reciprocate.
