Global Economy

State FM's raise questions on the new GST compensation formula

Ahead of the discussion in the GST council about the new compensation formula ‘revenue loss’ by states from July 2022, Centre and Opposition ruled states are already in disagreement over the issue.

Questions have been raised by finance ministers from some of the Opposition-ruled states even before the Centre presented proposal.

Tamil Nadu’s Palanivel Thiagrajan, West Bengal‘s Amit Mitra and Maharashtra’s Deputy CM Ajit Pawar plan on not joining the meeting.

While Mitra and Thiagrajan flagged that the agenda was set at the eleventh hour, Pawar was skeptical about the Rs 30,000 crore of compensation arrears.

According to Mitra, Finance Minister Nirmala Sitharaman had planned to keep a separate meeting to discuss this issue.

Yet, he said, they have decided to include the issue of compensation 48 hours before the meeting.

“How can you complete a discussion on such an important issue at the fag end of the meeting?,” exclaimed Amit Mitra.

Thiagrajan on the other hand complained that while the meeting was being set up at a short notice, the location also is unsuitable for some state FMs.

He added that the agenda did not come in one single piece at once and the last item (agenda number 18) pertaining to compensation was intimated to states on Sunday.

Since it is difficult to respond properly at a short notice, the state will be represented by officers, stated Thiagrajan.

The compensation formula ends in June while the Centre had committed that compensation would be ensured for any insufficiency in states’ annual growth, given the growth is short of 14 percent.

Centre is expected to strike a hard bargain with the adoption of new formula from July. States might require to take steps to ensure increase in collections and measures to augment revenue collection.

Issue of inclusion of fuel under GST is also being used as part of the efforts to enter the next round of reforms.

Yet, the steps might be resisted by non-BJP run states which have raised questions earlier as well.

West Bengal FM’s request to join the meeting virtually had been rejected by the Centre, that cited rule 4(2) of the Procedure of a Business Regulations of the GST Council.

Chandrima Bhattacharya, a minister in Mamata Banerjee government, in turn, has been appointed by the state to attend the meeting in person in Lucknow.

Mitra slammed and questioned why a physical meeting needs to be held when the pandemic hasn’t subsided, calling the meeting a potential super-spreader event.


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