On Tuesday, Finance Secretary Ajay Bhushan Pandey told the parliamentary standing Committee on Finance, that the central government may not be able to pay Goods and Services Tax (GST) shares of States as per the current revenue sharing formula. It has been three years since the grand launch of GST begins in 2017. However, it is the first time when the government finally accepted that they have no money to pay the states their share that they own according to the GST law and guidelines.
Mainly government blames the spread of coronavirus and lockdown, harming the economy. However, it is somewhat true! But the fact is that much before lockdown, since August 2019, the economic situation of India was facing major problems, one of them is that the GST collection is almost half of what is due to states. After a lot of discussions and conferences, the solution was either raising taxes on items or bringing exempted items under the tax net.
The meeting was actually to deliberate on “Financing the innovation ecosystem and India’s growth companies”. But the meeting led to the issue of GST compensation by the opposition members of the standing committee of finance. Now, the opposition members are at odds with the statement made by Pandey. This is the normal reaction that everyone will have after such a response. At the beginning of the current financial year, the center collected Rs.1.85 lakh crore as GST, down from Rs. 3.14 lakh crores from the last year. The states were supposed to get the compensation amount in bi-monthly installments. On Monday, the center released the final installments of Rs. 13,806 crore of GST compensation for the FY2019-20.
In 2017, the center claims that states will have GST support for about five years. Now, it seems like the government is going back on its commitment to states. However, backing up the situation, Pandey said that, the GST Act has the provision to rework the formula for the compensation paid to the state if the revenue collection drop below a certain threshold. The meeting on discussion of the new formula for GST calculations was supposed to be in July, but the meeting is yet to be called.
The meeting pushed at another level when the angry members of the opposition said the finance secretary, “How can center renege on the commitments to the state”. The state government is disappointed with this statement, as they are incurring expenses to battle coronavirus, and also assist migrants, and those who lost jobs, have been facing a serious resource crunch.
It is even shocking to know that the members never did a structured discussion on how and what is the impact of pandemic and lockdown on the Indian economy!
Well, if Pandey is saying that may not be able to pay tax to the states, let’s have a look at the revenue position of the country…
The average monthly GST compensation requirement was to the tune of Rs.14,000 crore while the average collection is only in the range of Rs. 7,000 to Rs.8000 crore per month. The total amount of compensation released for the year 2019-20 is Rs. 1,65,302 crores whereas the total amount of tax collected were Rs. 95,444 crore. The center used the tax collection of the year 2017-18 and 2018-19 to fill the gap needed to pay the compensation for the year 2019-20. In the current fiscal year of 2020-21, the central government has released Rs. 15,340 crores to the states and UTs as GST compensation despite the insignificant collection in the relief fund. But, if the government did not have any revenue, how were they even able to pay such a huge amount of compensation to the states at the beginning of this year, because the tax collection saved were already utilized and the center has already transferred Rs. 33,412 crore from consolidated funds of India to compensation funds to hold the IGST of the year 2017-18. Indeed, India’s revenue position is bad!
When the situation is so worse in terms of revenue, what was the need of Two long-haul Boeing 777 aircraft with a missile defense system that will serve on Prime Minister Narendra Modi? This aircraft which will be used by PM Narendra Modi, President Ram Nath Koving, and Vice President M. Venkiah Naidu, cost India Rs. 1200 crore.
One side government claims that they do not have any money to pay states their GST, then how are they able to fund for Ram Temple?
The committee chairperson, Mr. Sinha, said that most of the questions posed during the meeting are political in nature cannot be answered by the Finance Ministry of the nation. Here comes Finance Minister Nirmala Sitaraman in view! Such political questions can only be replied by Nirmala Sitaraman and can be taken up for the parliamentary meets during the debates on this subject.
However, the members of the committee were not able to make any decision yet. But if the center does not pay States their share, Imagine how badly it could affect the performance of the state!