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Punjab rejects central government’s options on GST compensation shortfall

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Punjab has formally rejected both options provided by the Central government to make up for goods and service tax (GST) compensation shortfall. State finance minister Manpreet Badal has written to Union finance minister Nirmala Sitharaman communicating the decision while seeking clarity on several concerns raised by the state.

“We thus take both the options with great regret as a clear breach of solemn and constitutional assurance by the Central government,” Badal said in his letters sent out on Monday. ET has seen a copy.

“We believe this is a betrayal of the spirit of co-operative federalism that formed the backbone of the GST journey so far,” he said, reiterating the demand for a dispute resolution mechanism.

Alternatively a GOM (group of ministers) may be constituted to deliberate on the matter and make recommendations in a time-bound period of 10 days, he suggested.

Badal flagged that states alone have very little role in the finalization of GST structure or tax rates, and future borrowings and repayment capacity will alter based on the decisions taken by the GST Council, where Centre has a decisive vote.

“Any future dispute in relation to GST Compensation will have deleterious impact creating situations of defaults by states,” he cautioned.

He pointed to the contradiction between the law and Centre’s suggestion of allowing states to borrow. As per the Act, all resources are credited to the compensation fund. “How can money borrowed by a state be credited to the compensation fund?” he questioned.

He also sought clarity on the compensation calculation in the period after January 2021, since projections till the end of compensation period with reasonable assumptions would lead to a total revenue loss of over Rs 4.5 lakh crore. “This, together with interest, would require more than 4- 5 years to repay the borrowings rather than 2-3 years that is being believed,” he said.

“It is also not clear when shall the impact of Covid-19 be agreed to have tapered off,” he noted.

Badal also questioned the basis on which the government calculated the loss due to GST implementation, assuming 10% growth over the previous year and attributing the rest to the Covid 19 pandemic. “This makes the whole exercise of calculating loss arbitrary, one-sided and devoid of any legal justification,” he said.

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