West Bengal FM urges Centre to pay compensation cess ahead of GST meet

Amidst muted Goods and Services Tax (GST) revenue growth and worries over delayed allocation of compensation cess to states, West Bengal Finance Minister Amit Mitra has urged central government to honour the commitment to pay compensation to states. The development came a day ahead of Goods and Services Tax (GST) Council meet on August 27 to discuss the single-point agenda of compensation to states.

"Centre must pay the compensation from different cesses that it collects, as it is not getting devolved to the states. In case of shortfall, it is the responsibility of the Centre to garner resources for fully compensating the sates, as per formula agreed upon with the states," West Bengal FM said in a letter to Union Finance Minister Nirmala Sitharaman.

Under the GST law, states were guaranteed to be paid for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Mitra said that the states should not be asked to borrow from the market as it will increase their debt servicing liability. Further, it may lead to a cut in the state's expenditure which is not desirable at this juncture when the economy is witnessing severe recessionary trend, he added.

Mitra further stated that the state government is greatly "alarmed" by Finance Secretary's statements that "the central government is not in a position to pay GST compensation due to dip in a collection meant for compensation."

In the last GST Council meeting in June, the crucial decision on compensation cess to states was deferred. Earlier, FM Sitharaman had said the 41st meeting of the Council on August 27 will have only single-point agenda how to pay compensation to states at a time when the compensation cess collection has declined due to disruption of economic activities amid coronavirus lockdown. The inadequate realisation of GST compensation cess during coronavirus lockdown has delayed the payment to states. The central government may ask states that they should borrow individually from the markets instead of the central government taking the route.

The centre had released Rs 1,65,302 crore to states as their Goods and Services Tax (GST) compensation for financial year 2019-20.

By Chitranjan Kumar

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