States Demand GST Compensation Extension For 5 Years During Pre-Budget Meeting

States have sought extension of GST compensation scheme for another five years
States have sought extension of GST compensation scheme for another five years

Several states have sought extension of the GST compentation cess regime for another five years and also urged that the share of central government should be raised in centrally-sponsored schemes, as their revenues have been severely hit by the Coronavirus pandemic.

In addition to this, several states also flagged higher tax rate on textile products from January 1 and demanded that the rate hike be put on hold.

The matter was raised by states like Gujarat, West Bengal, Delhi, Rajasthan and Tamil Nadu, who said that they are not in favour of a hike in Goods and Services Tax (GST) rate on textiles to 12 per cent, from 5 per cent currently, with effect from January 1, 2022.

Both the issues came up for discussion during finance minister Nirmala Sitharaman's pre-budget consultations with her counterparts from the states.

Incidentally the meeting of the GST council will take place on December 31, i.e. tomorrow.

The GST compensation to states for revenue shortfall resulting from subsuming of local taxes such as VAT in the uniform national tax Goods and Services Tax (GST) will end in June next year.

There has been a loss of revenue to the states due to the GST tax system, the Centre has not made arrangements to compensate the loss of revenue of about Rs 5,000 crore to the state in the coming year, so the GST compensation grant should be continued for the next five years after June 2022, Chhattisgarh chief minister Bhupesh Baghel said.

"Many states have asked for this. We have also asked to extend GST compensation. If it is not extended, the finances of many states will be in a bad shape," Delhi deputy chief minister Manish Sisodia said after the meeting with Ms Sitharaman.

Pointing out that Chhattisgarh has received less share of central taxes by Rs 13,089 crore in the Union Budget of the last three years, Mr Baghel demanded the share of central taxes should be given to the state completely in the coming year.

He also demanded that Rs 4,140 crore deposited with the Centre at the rate of Rs 294 per tonne on coal mining from coal block companies should be transferred to Chhattisgarh soon.

Rajasthan education minister Subhash Garg said extension of compensation cess window till 2026-27 is a valid demand of states and the Centre should consider it.

He also demanded reduction in import duty on gold and silver from 10 per cent to 4 per cent.

"Our most significant demand is that the Centre's share in centrally-sponsored scheme has gradually reduced and states share has increased. Earlier share would be 90-10 and now it is 50-50 or 60-40, our request is that it should go back to 90-10," Mr Garg said.

West Bengal also pitched for extension of GST compensation for another five years citing two years of difficult time due to Coronavirus pandemic.

Coronavirus crisis was not anticipated when this was fixed, said West Bengal urban development & municipal affairs minister Chandrima Bhattacharya. She also said that states have also asked for raising the Union government's share in the Centre-sponsored schemes.

With regarding to state borrowing, she said that additional borrowing window should be without any restriction.

Tamil Nadu finance minister P Thiaga Rajan said he has demanded extension of GST compensation cess regime for at least two years because of the pandemic.

He also made a case for raising share of the Centre in centrally-sponsored schemes. 

On the higher GST rate on textile products, Mr Sisodia said the move to raise GST on textiles from 5 per cent to 12 per cent is not people friendly and this should be withdrawn. If a common man buy clothes of Rs 1,000, he has to pay GST of Rs 120. "Delhi is not in favour of this," he said.

Mr Sisodia is also Delhi's finance minister.

Mr Thiaga Rajan said, "It is one point agenda (for tomorrow's Council meet). It is an agenda that many states have raised. In the agenda item it says that it was raised by Gujarat but I know that many states raised it. .. It should be stalled (move to raise GST rate on textile)".