Delhi Chief Minister Arvind Kejriwal on September 1, 2020 wrote a letter to Prime Minister Narendra Modi, requesting him to consider a simpler and legally sustainable option for providing GST dues to the states so as to tide over the COVID-19 economic crisis.
Kejriwal told the PM that the two options that are given by the Union Finance Ministry requiring the states to borrow loans and then meet the repayment liabilities will put an onerous burden on the states.
The Delhi CM said the GST Council should consider authorising the Centre to borrow on its behalf and extend the period of collection of cess beyond 2022.
The GST council in its meeting on August 27, under the chairmanship of Finance Minister Nirmala Sitharaman, offered states two options to tide over their GST revenue shortfall. The Centre specified that the state governments could borrow either via a special window that it will facilitate through the Reserve Bank of India (RBI) or raise debt from the market, a proposal that many states including Delhi and Punjab rejected. The states were given a week to respond.
“It is in the background that I would like to submit that the two options of borrowing presented by the Ministry of Finance will put an extremely onerous burden on the States which are, as it is, reeling under the financial crisis due to the shortfall in the revenue collections and an increased commitment of expenditure emerging from COVID-19 response,” a Delhi government spokesperson quoted from Kejriwal’s letter to PM in which the CM termed the GST reform as the landmark reform in the indirect tax structure of India
“The Goods and Services Tax (Compensation to States) Act, 2017, very clearly provides for compensation to the States for the loss of revenue arising on account of the implementation of the GST in pursuance of the provision of the Constitution (101st Amendment Act, 2016). To create an artificial distinction between loss occurring due to the implementation of the GST and those occurring due to COVID-19 pandemic goes against the very spirit of the Compensation Act and will lead to a creation of a trust deficit between the Centre and the States,” said Kejriwal, who was an Indian Revenue Services (IRS) officer.
“Considering the above situation, it is my humble submission that the Government of India may like to consider a much more simpler and legally sustainable option of borrowing by the Government of India to the full extent of the requirement of compensation in the year 2021 and 2022, to be serviced and repaid by the future collection of cess w.e.f 2022. I am informed this was the consensual opinion of majority of the States during the deliberations held in the 41st GST Council meeting,” he said.