A meeting of the GST Council ought to be called immediately to discuss a raft of issues, including the grim possibility that the shortfall in compensation to the states could widen just when they need the revenues most to tackle the Covid-19 crisis, Bengal finance minister Amit Mitra has said.
The GST Council, the apex decision making body for GST, last met on October 5 last year.
The Council is obligated to meet at least once in a quarter. But this time the gap between the meetings has stretched to over seven months and there is still no indication from the Centre when it intends to convene the next one.
In a letter written to his central counterpart Nirmala Sitharaman, Mitra, who assumed charge as the finance minister of Bengal for the third time earlier this week, said the compensation payable to the states to meet the shortfall in GST compensation could be much higher than anticipated in the wake of the second Covid wave that forced states to once again adopt lockdown measures to check the spread of the virus.
Mitra said in his letter that the Centre’s projected shortfall was Rs 156,164 crore in 2021-22 — a forecast that was made before the second Covid wave engulfed the nation
“Now, due to Covid wave 2 and lockdowns, the compensation will be much higher than what was projected earlier. This is undoubtedly deeply distressing,” Mitra wrote on Wednesday.
He exhorted Sitharaman to urgently call a virtual meeting of the Council to discuss the impending situation and hash out new solutions to the impending crisis.
Mitra reminded the finance minister that the procedure and conduct of business regulations of the GST Council provides for a meeting once every quarter.
“You would agree not meeting every quarter to discuss vital issues is not in line with the very principle of cooperative federalism,” Mitra added.
The letter comes soon after the Centre turned down a plea from the Bengal Chief Minister Mamata Banerjee to exempt GST on Covid-19 vaccines and related supplies. Sitharaman had argued that far from reducing the cost of the vaccines — a burden that the Centre has coolly offloaded to the states — it will see vaccination costs rise because the vaccine makers would not be able to claim input tax credits.
This is an untested claim and will only serve only to fortify the specious arguments of the vaccine makers justifying why they charge states a higher price than the rate at which they provide it to the Centre.
Compensation to the states to meet shortfall in GST collection turned into a highly contentious issue last year when the Centre tried to wriggle out of its Constitutionally-mandated responsibility to pay full amount.
It had tried to attributed a substantial part of the shortfall to the pandemic, arguing that it wasn't obliged to pay the sum that it had arbitrarily computed. It said that it would permit the states to borrow more on the strength of their already-strained balance sheet to meet a part of the GST shortfall.
Under pressure from the Opposition-ruled states, the Centre had to give in and dropped that argument.
Eventually, the Centre agreed to borrow a sum of Rs 1.10 lakh crore, which constitutes two thirds of the outstanding dues for 2020-21, and pass it on to the states. The states will be required to borrow the rest and pay it out of the compensation cess that is likely to be extended beyond the July 2022 when it was supposed to cease.
