NEW DELHI: States on Wednesday sought timely compensation of Goods and Services Tax (GST) and said that they do not want compensation to be limited by IGST collections.
State finance ministers, who met Union Finance Minister Nirmala Sitharaman for a pre-Budget discussion on Wednesday, also asked the Centre to consider relaxing its fiscal deficit target to 4 per cent from 3.3 per cent, in order to prop up the slowing economy.
Among others, Tamil Nadu deputy chief minister O Panneerselvam said “the obligation to provide GST compensation is not restricted to the amount of available compensation cess. The Centre is constitutionally obliged to make good the states for any shortfall in GST collection.”
The states pointed out that the then finance minister Arun Jaitley had said that if the amount in the GST compensation fund falls short of the compensation payable to states, the GST Council would decide how to raise more resources. Some said this “could include market borrowing, which could be repaid by cess collection in subsequent years.” The compensation fund is believed to have a shortfall of `48,650 crore, according to officials.
Some states also complained that by cutting the corporate tax to 22 per cent, states’ share of Central taxes was also cut. As compensation, they suggested that the Centre merges the cesses and imposts levied on income-tax with the tax itself. Cesses are retained by the Centre, while taxes are split between the Centre and states according to a formula drawn up by Finance Commission.
However, many states considered the relaxation of fiscal deficit to be a key issue as otherwise with a slowing economy, the Centre’s tax revenues would fall in the future too.
“The biggest take-home from the discussion was the suggestion by Bihar and Kerala to raise the fiscal deficit limit to 4 per cent. It was agreed by a large number of states. In the current year, real expenditure of states will decline — a crazy macro outcome in times of recession,” Kerala finance minister Thomas Isaac tweeted.