Karnataka suggests higher taxes on luxury, sin goods

“Despite the pandemic, we have been a high-performance state when it comes to tax collection.

Published: 28th August 2020 06:24 AM  |   Last Updated: 28th August 2020 06:24 AM   |  A+A-

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Express News Service

BENGALURU: Even as it stressed that Centre-State coordination is absolutely necessary to sail through the current economic challenges, Karnataka demanded that its share of GST compensation be released immediately. Home Minister Basavaraj Bommai, who represented the state at the GST Council meeting on Thursday, said Karnataka had achieved 71.61% GST collection despite Covid and urged the Council to pay compensation of Rs 13,764 crore for the past four months.

“Despite the pandemic, we have been a high-performance state when it comes to tax collection. I have insisted that the Council should not punish us if it can’t reward us,” Basavaraj Bommai told TNIE. With the GST Council offering two options for states to borrow, Karnataka insisted that the Centre itself should borrow and pay compensation to the states. 

“Since compensation cess goes directly to the Centre, it will be difficult for states to raise loans. The Centre has the powers to extend the period for repayment of this loan beyond 2022 and get special interest rates. Hence, it is suitable for the Centre to take loans and give it to the state,” Bommai said in a statement. The state also suggested higher taxes on luxury and sin goods, as well as tobacco among others. 

‘K’taka will cooperate with Centre’ 

Bommai added that the state will extend full cooperation to the Centre. “In conclusion, the Union Finance Minister proposed that the Centre will facilitate loans without burdening states and arrange for repayment by extending compensation cess on this loan for three years. States have been given seven days to approve it. We have sought for it to be given in writing to understand the terms and conditions,” Bommai’s statement said.

Union Finance Minister Nirmala Sitharaman, at a press conference following the GST Council meeting, said that states were given two option to borrow to meet the shortfall in GST revenue, estimated to be Rs 2.35 lakh crore in 2020-2021. The first option is that the Council will facilitate, through RBI, for states to borrow Rs 97,000 crore (estimated shortfall in compensation due to GST implementation) at a reasonable interest rate. 

The second option given to states is to borrow the entire Rs 2.35 lakh crore shortfall. Both options have been provided on the categorical conditions that states will do the borrowing. The interest will be repaid from the cess collected after 2022, beyond the first five years of GST implementation.

Nirmala Sitharaman added that the GST Council will talk to RBI to get states a ‘G-Sec proportionate number of years linked rate’ so that each state does not have to go running for loans.  She added that the government will further relax 0.5% in states’ borrowing limit under the FRBM Act. Earlier this year, the Centre had increased borrowing limit of states from 3% to 5% of GSDP.  


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