Amit Mitra urges FM to extend GST compensation for another three to five years

14 Jun 2022 , 09:43 AM

Amit Mitra, the West Bengal chief minister‘s principal adviser, has urged Union finance minister Nirmala Sitharaman to extend the goods and services tax (GST) compensation to states for another three to five years beyond June 2022, to help states cope with the financial consequences of the Covid pandemic.

“We observe with dismay a worrisome indicator that the Centre has decided to withhold the goods and services tax (GST) compensation to states beginning in July 2022. In a letter to Sitharaman, Mitra said, “Such a decision, if implemented, is absolutely opposite to what was intended at the time of GST implementation.”

State governments are guaranteed a 14 % annual income increase for the first five years after the tax’s debut on July 1, 2017, under the GST compensation mechanism, which is legally guaranteed.

On June 14, 2016, the Empowered Committee of State Finance Ministers met in Kolkata to discuss whether the states and the Centre could agree on a GST. All states, regardless of party affiliation, agreed to implement GST on the condition that the Centre reimburse the states for the income loss over a five-year period.

“You will comprehend that none of us could have imagined that the globe would be attacked by a Covid pandemic of this size in 2016 when the aforementioned decision was taken.” We could not have predicted that the global economy, including India’s, would be put under unprecedented strain as a result of the epidemic,” Mitra wrote.

During the previous three years, total lockdowns followed by partial ones have badly weakened the foundation of the empowered committee’s decision, which was made with tremendous hope and expectations in 2016, he added.

The profits from the GST compensating cess fell considerably short of what was needed to cover the state’s income loss in FY21 and FY22 compared to the protected level. To close the shortfall, the government has to turn to a special RBI window for loans. The Centre has said that servicing these debts will need the imposition of cesses on some demerit commodities until March 2026.

“Though we are in the third year of the epidemic, the pandemic’s influence continues to negatively damage our economy,” Mitra remarked. Manufacturing, services, and agriculture all have fractured supply chains. The MSME sector is fighting to stay afloat, and the informal/unorganized sector, which employs over 90% of the workforce, is highly fragmented.”

“The unexpected war against this epidemic has put the states’ budgetary health under severe strain. Furthermore, significant inflationary pressures have exacerbated and harmed the economies of governments that are already grappling with massive budgetary obligations. The GDP has not yet recovered to its pre-pandemic level, and it is unlikely to do so anytime soon.”

Sitharaman made it clear that the GST compensation was just for the first five years following the implementation of the GST. The GST Council, which she chairs, is expected to meet later this month to discuss the desire of numerous states to prolong the compensation term by 2-5 years.