Union finance minister Nirmala Sitharaman on Friday held pre-Budget consultations with state finance ministers in the Capital, during which some states sought a five-year extension of the Goods and Services Tax (GST) compensation and more funds for infrastructure creation, while others demanded additional resources for social development, people aware of the matter said.
The finance ministry noted down states’ suggestions and also their specific issues. The Union Budget may not be the right forum to consider extending the GST compensation ; the right forum is the GST Council, two persons aware of the matter said requesting anonymity. Union finance minister is the chairperson of the council, which is represented by states through their respective FMs.
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“Legally, GST compensation cess ended on June 30, 2022. As per the GST Compensation to States Act, 2017, states’ revenue growth was guaranteed at 14% per annum during the transition period — from July 1, 2017 to June 30, 2022. While states have no claims for compensation from July 1, 2022, the cess continues till March 31, 2022 to service the back-to-back loans released to states when compensation cess fell in 2020 and 2021 because of a slump in economic activities due to the Covid-19 pandemic,” one of them said.
At the time of its launch on July 1, 2017, the GST law assured states a 14% increase in their annual revenue for five years, and also guaranteed that their revenue shortfall, if any, would be made good through a compensation cess levied on luxury goods and sin products such as liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal.
At the pre-budget meeting with Sitharaman, Jharkhand, represented by its finance minister Rameshwar Oraon proposed extending the GST compensation by another five years. “Some states raised the issue of outstanding dues, but the Centre is prompt in releasing compensation amount,” the second person said. Immediately after the meeting, the Union finance ministry released ₹17,000 crore balance GST compensation for April-June, 2022 period to states and Union Territories. “The total amount of compensation released to the States/UTs so far, including the aforesaid amount, during the year 2022-23 is Rs.1,15,662 crore,” the finance ministry said in a statement.
“This is despite the fact that total cess collection till October, 2022 is only Rs.72,147 crore and the balance of Rs. 43,515 crore is being released by the Centre from its own resources. With this release, the Centre has released, in advance, the entire amount of cess estimated to be collected this year till March-end available for payment of compensation to states. This decision was taken to assist the states in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year,” it added.
On Friday, Chhattisgarh Chief Minister Bhupesh Baghel reiterated the state’s demand of refund of National Pension Scheme (NPS) amount and raised the GST compensation matter. Demanding a refund of the NPS amount, Baghel said the state government has restored the old pension scheme in Chhattisgarh for securing the future of government employees and their families. ₹17,240 crore deposited with NSDL till March 31 should be returned so that it can be put in the General Provident Fund of the employees, he added.
During the meeting with Sitharaman, Tamil Nadu’s finance minister Palanivel Thiaga Rajan said that successive Union budgets have “always under provided” for railway projects in the state. “This continuous neglect has resulted in a skewed modal mix in the State. I request adequate fund allocation for railway projects in the State at least in the upcoming Union Budget,” the Tamil Nadu minister said.
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In a tweet, Haryana CM Manohar Lal Khattar said he participated in the meeting chaired by Sitharaman and spoke about key issues related to education, health, self-reliance and development.
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