Indian opposition-ruled states ask government to pay delayed GST compensation

FILE PHOTO: A supporter of India's ruling Bharatiya Janata Party (BJP) holds a placard during a rally to support implementation of the Goods and Services Tax (GST) in Mumbai, India, June 30, 2017. REUTERS/Shailesh Andrade

Manoj Kumar-AUGUST 26, 2020

NEW DELHI (Reuters) - India’s opposition-ruled states urged the government on Wednesday to clear delayed payments amounting to several billions of dollars, promised as part of the Goods and Services Tax (GST) to set off a fall in receipts, state officials said.

In 2017, India’s 28 states had agreed their local taxes could be subsumed into the new, nationwide GST, in what was hailed as a major tax reform. Prime Minister Narendra Modi promised to compensate states for any revenue loss for five years.

The GST council, comprising central and state finance ministers, will meet on Thursday to discuss ways to find funds either through new surcharges on taxes or additional borrowings to compensate states, a federal government source said.

Finance Minister Nirmala Sitharaman said earlier this month that federal government would clear payments to the states.

Sonia Gandhi, interim president of Congress party, India’s main opposition, held a virtual conference with the heads of seven states on Wednesday to oppose any plans to cut payments.

She said the lack of compensation to the states was a betrayal by the Modi government.

State chief ministers said they were starved of funds due to delay in compensation pending since April, and a fall in state tax receipts due to the coronavirus pandemic.

“I have no money even to fight corona,” Amarinder Singh, chief minister of Punjab said at the conference, adding state revenue had fallen by more than one third.

GST collections had been falling short of targets even before the pandemic, a senior finance ministry official said, making it difficult to to compensate the states, which are supposed to receive 50% of GST receipts.

But with GST revenues down 47% year-on-year in the June quarter, the states are staring at a shortfall of 3 trillion rupees in the fiscal year ending in March, Soumya Kanti Ghosh, chief economist at State Bank of India in a note on Monday.