TN rejects Centre’s GST compensation options

Rejecting the two options given to states by the central government for borrowings at the recent GST Council Meeting, Tamil Nadu Chief Minister Edappadi K Palaniswami on Monday wrote to PM Modi that New Delhi must compensate states and not ask them to borrow money.

“Most states, and in particular Tamil Nadu, agreed to the implementation of GST and to support the legislation on the basis of the unequivocal commitment given by the Government of India to compensate the states for any revenue loss,” Palaniswami pointed out in the letter.

So far, no compensation has been released for the shortfalls in revenue collection since April 1, 2020. As on date, total Rs12,250.50 crore is due to Tamil Nadu as compensation for shortfall in GST collections, of which Rs11,459.37 crore has accrued from April to July, 2020.

Noting the states have suffered a severe loss in revenue in the wake of the Covid- 19 pandemic, he said, “Our stance has consistently been that the Government of India has a moral and legal obligation to pay the compensation for the shortfall in GST collections.”

“I am concerned about the two options that have been offered to states… My first concern is in both the options suggested by the GoI, the states are being required to borrow from the market to make good the shortfall in compensation due. This is administratively difficult to implement and more expensive. Further, the reasons being cited for such an arrangement are not persuasive,” he said.

“The argument that the states borrowing for what is essentially a GoI obligation is a seemingly better optical arrangement does not appear to be a strong or valid reason,” he said reiterating the GoI should advance funds to the GST Compensation Cess fund, if need be by borrowing in the market and service the debt by an extension of the compensation cess.

He appealed to PM Modi to intervene and direct the Ministry of Finance to review their stance, and agree to a mechanism in which the GoI raises the required funds as a loan and lends it to the GST 4 Compensation Fund against future cess receipts, so the GST compensation can be paid in full to the states in 2020- 2021.