The issue of the GST has always been at the forefront of political allegations when it comes to accusing the Central government of not providing enough assistance needed by the state governments. Claiming that the payment of the GST is a legal responsibility of the Centre, the deputy chief minister of Maharashtra, Ajit Pawar, said that the Union government should take a loan and pay the compensation to the state governments. Even in the GST Council meeting, Pawar continued the consistent pattern of complaining about not getting enough financial aid from the Central government amidst the financial crisis owing to the lockdown.
However, all these inefficient voices of the MVA government became tight-lipped when data exhibiting the direct and indirect assistance from the Central government to the Maharashtra government was released in the interim. When the MVA government failed in creating a public perception on the above mentioned baseless allegations, they directed their entire force in blaming the Central government on the issue of GST compensation. However, before making some irresponsible accusations, it is indispensable for everyone to understand the basis of the GST compensation and its provisions in regards to the payment of the same to state governments while understanding the role of the Central government.
With the intent of keeping a single tax system and reducing tax burden in the country, the then Atal Bihari Vajpayee-led government had come up with the concept of GST. The then Union government had appointed a committee under the chairmanship of the economist, Dr Vijay Kelkar. This committee recommended GST in 2005 with a view of having a single tax system across the country. The Manmohan Singh-led UPA government announced that the GST will be introduced by April 2010. However, a common consensus could not be achieved among the state governments on the issue of compensation to be given to the states in case a financial loss was incurred in the process of tax collection. However, it was Modi government’s decisiveness and inclusivity which encouraged all the state governments to come to a consensus and introduce the GST in an absolute union. The positive consequence of this is that the tax rate on various goods and services came down from an average of 24% to 17%.
All the staunch critics accusing the Union government must understand that the Centre cannot unilaterally take any decisions regarding these issues. It has to be taken into consideration with all stakeholders in the GST Council, which has been constituted for these purposes. The finance ministers of all the states act as members of the council. The GST Council has the power to recommend laws, regulations and tax rates on the goods and services tax. A decision can only be made if any proposal has the support of at least two-thirds of the members.
Now, let’ analyse the issue of compensations: If a state is receiving Rs 1 lakh crore and Rs 90,000 crore from GST, then according to the GST (Compensations to States) 2017 Act, the Central government is obligated to give Rs 10,000 crore to the state government. This compensation is paid through cess received from inter-state transactions. This compensation has been paid by the Centre for two and a half years since the enactment of the Act without any friction. However, since the end of March 2020, the entire economic cycle of the country has been running on a crisis mode, owing to the lockdown which was announced due to Covid-19.
There has also been a steep decline in the revenue collection at the level of the central government for the last 4-5 months. Referring to the GST Act, the central government could have easily said that giving compensation will not be possible. However, the central government instead of keeping its hands off the trouble has, in fact, taken a holistic view and assured assistance to the state governments.
As on date, the Central government is obligated to give a total of Rs 3 lakh crore to various state governments, out of which Rs 65,000 crore will be collected through cess. The question is of the remaining Rs 2,35,000 crore. Here, the Central government has given two options to the state governments by which they can get the balance compensation.
As per the projected calculations, the amount payable through the cess collections was Rs 97,000 crore. However, it has now come to Rs 2 lakh 35 thousand crore. According to the first option, the Central government has proposed to arrange the balance compensation amount through an RBI loan, where the principal and interest will be given by the centre and the repayment will start after five years. In addition, this borrowing shall not reflect in the balance sheet of the states.
According to the second option, the Central government will pay the principal of Rs 2 lakh 35 thousand crore from the open market, but the states will have to pay the interest and this will have to be mentioned in the state’s balance sheet. For this, the Centre has also increased the borrowing limit of the states by 0.5%.
Both of these options are pragmatically based. However, the MVA government has disapproved of all of the above assistance. The state government incomprehensively demands that everything must be given by the Centre. In the current times of crisis, the Maharashtra government must act on the basic foundations of the federal structure and explore the options for them along with the helping hand extended by the central government instead of asserting the entire pressure and the financial burden on the central government.
At the end of March 2020, the Centre received Rs 95,000 crore through cess. However, the Centre has given a return of Rs 1 lakh 65 thousand crore. From this amount, the Centre has given the highest return of Rs 19,200 crore to Maharashtra. With these facts and figures, the supercilious righteousness of the Maharashtra state government stands nothing but absolutely exposed.
Given the situation with the Chinese at the border for the past few months, the central government also had to increase defence expenditure. Despite the Central government’s financial difficulties, the Centre is regularly providing free food, grains and gas cylinders to the poor and needy during the lockdown. Assistance amounts from the Pradhan Mantri Kisan and Jan-Dhan schemes are being deposited directly into bank accounts, and an additional Rs 1,000 is being disbursed directly to the bank accounts of the elderly, widows and the disabled. The central government has not transferred the responsibility of managing the funds required for the implementation of these schemes to anyone or has not suspended the implementation of the schemes as well.
Such an extraordinary situation is an exception. In such times, states should also shoulder their responsibilities. The state’s 2020-21 budget is Rs 4 lakh 30 thousand crore, while the share of the GST is about Rs 50,000 crore. Given the size of the state budget, the share of the amount is not very large. Apart from the amount due by the Central government, the government should first state its expenditure planning about the remaining Rs 3 lakh 80 thousand crore. Without doing so, the alliance government has started brainstorming on the amount that has to come from the centre. On one hand, the MVA government explicitly claims the Central government as the head of the family, and on the other hand, it is shying away from the self-responsibilities as a family member. These things only expose their hypocrisy.
The fact of the matter is that the MVA government, unlike other state governments, has not helped the people of Maharashtra in any way. Instead, it has only created chaos by its way of handling the situation. States like Karnataka, Madhya Pradesh, Uttar Pradesh and Telangana have declared various packages for the benefit of their citizens. However, the Maharashtra government has only moved away from taking responsibilities, and to hide the same, they are playing the GST compensation card.
The writer is media in-charge, BJP Maharashtra. The views expressed are personal.