A pre-budget consultation between the Centre and states on Thursday proved to be a curtain raiser for a stormy GST Council meeting scheduled Friday.

At their meeting with finance minister Nirmala Sitharaman on the budget, state finance ministers demanded the extension of the GST compensation cess for another five years and a rollback on the rate hike in textile and footwear.

The states also said the share of the states in the centrally-sponsored schemes be raised as the Covid-19 pandemic has impacted their revenues.

The compensation to states for the revenue shortfall resulting from the subsuming of local taxes such as VAT to the GST regime will end in June.

The agenda of the GST meeting on Friday is a discussion on the recently announced hikes in the rates for textiles and footwear, which come into effect from next month.

Several states have voiced concern about the rates as it would impact two labour intensive sectors and also hit demand.

Bengal demand

Bengal pitched for the extension of the GST compensation cess for another five years citing two years of difficult time because of Covid-19.

The Covid crisis was not anticipated when this was fixed, said Bengal urban development and municipal affairs minister Chandrima Bhattacharya.

For centrally-sponsored schemes, the Centre should increase its share, she said, adding, there are various areas from where the central government can actually augment finance but it is very difficult for the states because the area is very short.

With regards to state borrowing, she said that additional borrowing window should be without any condition.

Rajasthan education minister Subhash Garg said the extension of compensation cess window till 2026-27 is a valid demand of states and the Centre should consider it.

He also demanded reduction in import duty on gold and silver from 10 per cent to 4 per cent.

“Our most significant demand is that the Centre’s share in centrally-sponsored scheme has gradually reduced and states’ share has increased. Earlier the share would be 90-10 and now it is 50-50 or 60-40, our request is that it should go back to 90-10,” Garg said.

Tamil Nadu finance minister P.T.R. Palanivel Thiagarajan said the Centre should allow the states to borrow up to 5 per cent of the state gross domestic product without conditions for the 2022-23 fiscal.

The Union government’s preconditions for states to avail themselves of additional borrowing limit of 1 per cent — 0.5 per cent for capital expenditure and 0.5 per cent for power sector reforms — of state GDP, adversely affects the state finances and its patterns of expenditure.