Telangana Finance minister T Harish Rao wants Centre to pay GST compensation

HYDERABAD: Finance Minister T Harish Rao on Thursday demanded that the Central government take the responsibility and pay the Goods and Services Tax (GST) compensation to the States.

He opposed the GST Council’s proposal of raising loans on behalf of the States to pay the compensation.  "The Centre should raise the loan and pay the GST compensation to the States," Harish said.  He demanded that the council immediately release Rs 2,700 crore IGST dues and Rs 5,420 crore GST compensation, a total of Rs 8,120 crore, to Telangana.

Participating in the GST Council meeting from BRKR Bhavan, along with Chief Secretary Somesh Kumar, Harish pointed out that if there is any surplus in the GST cess after paying the compensation to the States, the Centre deposits it in the Consolidated Fund Account and utilises the amount.

Driving his point home, Harish recalled that the States agreed for the new tax regime as the Centre had assured them that there would be no loss to their revenues. He said that but after coming onboard the GST regime, the States lost around 60 to 70 per cent revenue, whereas the Centre’s loss was just 31 per cent.

Harish made it clear that the discussion on the GST compensation was unnecessary as it was assured in the 7th, 8th and 10th GST Council meetings that the it would be paid from the Consolidated Fund or by raising loans.

"If the States raise the loans to meet the shortfall of GST revenue, as suggested by the council, several problems will crop up. The interest rate will vary from State to State. The loan and repayment term, too, will not be clear. Besides, there are FRBM Act limitations too. There will be utter confusion in repaying the loan," he said, while opposing the suggestion of States raising loans to overcome the shortfall of GST revenue.

Harish said that if the Centre takes the loan, the interest rate would be way lower. "Due to COVID-19, it is not clear when the States' financial situation will improve. We are unable to estimate the possible deficit in tax collections. Thus, the Centre should take the responsibility and pay the GST compensation once in two months, as assured in the past," he suggested.

GST Council’s two proposals

The council made two proposals on the payment of GST compensation. The first one was that the Centre will take a loan and pay the GST compensation to the tune of Rs 1.65 lakh crore to the States. The second proposal was of the GST Council taking a loan on behalf of States to pay the compensation and revenue loss caused by the pandemic, which is approximately Rs 3 lakh crore. The principal and interest amounts would be paid by the GST Council. The States have been given seven days to put forth their views on these proposals.