Bengal has proposed that the period of paying financial compensation to the states to meet projected shortfall in GST tax collection should be extended by five more years in the wake of the debilitating pandemic.

Arguing that the GST revenues are yet to stabilise, Bengal finance minister Amit Mitra, who is part of the GST Council, wrote to Union finance minister Nirmala Sitharaman to extend the period beyond July 2022, when the initial five-year period ends.

“Revenue collection, shortfall, borrowing and as a result compensation — the entire financial model of GST must be examined. And if we do so, it will be evident that there should be another five-year extension,” Mitra told The Telegraph this evening.

The Centre had constitutionally mandated to cover the shortfall in GST collection if the revenue growth falls below a mutually accepted predetermined level for five-years from the start of implementation of the new indirect tax regime from 2017. The written assurance from the Centre formed an important step in bringing on board the opposing states.

However, the Centre and the Opposition ruled states were at loggerheads last year when the former sought to abdicate part of the responsibility. However, it finally caved in under pressure and agreed to compensate states by borrowing. It was further decided that the principal and interest of the loan would be paid by extending the period of collecting cess on luxury and sin goods.

“We don’t know how many years we have to collect the cess. Then we might as well also increase the period for compensation,” Mitra argued.

The letter bears out why calculation of the compensation and mechanism of payment has become one of the key areas of confrontation between the non-BJP states and the government of India (GoI).

In the letter, he argued that the Centre still owes Rs 63,000 crore cumulatively to the states and Rs 4,911 crore to Bengal going by actual revenue collection in 2020-21. “We had taken a projected figure but now we have hard data. Going by this, there is a shortfall which the Centre should immediately release as grant,” he said.

Mitra also pointed out that the Centre has to borrow Rs 2,13,000 crore instead of Rs 1,58,267 crore as proposed by the GoI, if last nine months’ actual revenue collection is considered instead of normative growth of 7 per cent as was done in the last fiscal.

Mitra made a pitch to allow states to borrow 5 per cent of states’ GDP without any pre-condition. Last year, the limit was relaxed to 4 per cent and up to 5 per cent, conditionally. This year, the limit has been scaled back to 3.5 per cent and 0.5 per cent additional if states meet capital expenditure targets.

Mitra spoke of the trail of destruction caused by cyclone Amphan, Tauktae and Yaas which will cost several states a significant amount on rehabilitation. Given that states are to spend on universal vaccination and Covid measures, it would be difficult to increase capital expenditure in 2020-21.

Bengal has raised capital expenditure by more than 100 per cent from Rs 15,970 crore in 2019-20 to Rs 34,000 crore this year, he said.