GST aid: States to fall off the cliff if GST compensation is withdrawn, says Amit Mitra : 26-09-2019

State governments are facing the dire prospect of having to bear 60% of the public development expenditure with much reduced share of general government revenue by 2022 when the guaranteed compensation for GST revenue shortfall for them will end, West Bengal finance minister Amit Mitra said on Wednesday and warned that this could be “extremely destabilising” for India’s federal polity.

His remarks come at a time when the 15th Finance Commission is finalising the formula for sharing of resources between the Centre and states for the FY21-FY25 period and many states are reiterating their concerns over the commission’s terms of reference being allegedly skewed in favour of the Centre.

“I said to Mr. NK Singh (chairman of the Commission) when he came to the GST meeting (in Goa last Friday), that I can see in 2022 states will fall off the cliff..,” Mitra said during a ‘Fireside chat’ with Financial Express managing editor Sunil Jain on the first day of the two-day, “Technology Senate BANGLA”, organised by The Express Group here.

Under the GST compensation law, states are being assured a 14% annual growth in their own GST revenue over the FY16 base for the first five years of GST, which came into effect in July 2017. This has partly insulated the states from taking a big revenue hit, even though the GST collections have been far below expectations and it has hit them too in terms of the transfers from the Centre.

Mitra said Bengal has been making big headway in the IT sector and the state’s has been growing much faster than the national average (the state’s GSDP grew 12.58% in FY19 versus 6.8% expansion in the nation’s GDP). Also, tax collections by the state have been more robust than the Centre with efficient use of IT. He said Bengal was the first state to integrate its treasuries with core banking solution (CBS) of RBI, called e-Kuber, for making e-payments, which increased compliance and tax collections.

On the Centre’s tax collections, the minister said, “Direct taxes have not done well, indirect taxes, which is (mostly) GST, have done very poorly. One hand you have the states’ income (of which is GST is the largest source), not growing, on the other hand the Centre’s own revenue collections are declining. That means you have a huge amount of shortfall.”

Mitra alleged that a ‘massive fraud’ has taken place in the GST regime due to the tax’s “unprepared roll-out”and inadequate structural support. “The central government itself said the magnitude of the fraud was Rs 45,600 crore,” he said, referring to a statement in Parliament. He said the country was currently facing unprecedented economic slowdown due to demonetisation and a flawed GST, which hit the informal and unorganised sectors badly.

On the recent slashing of corporate income tax, he said, “Around Rs 8 lakh crore is in the books of 500 top companies of India today. Giving them a tax rebate does not solve the problem of (lack of) demand. They are not investing because there is not adequate demand for their products and services.”

The minister said the Bengal government was very much focusing on “people-centric applications” in adopting emerging technologies and its goal was to take these technologies to the grassroots level. According to him, the government wanted to make tier-II and tier-III IT cities in the state. “We would like to use Blockchain technology for land records and in agriculture. We will analyse big data using Blockchain,” he said, adding Bengal Silicon Valley had got very good response from big IT companies. “Today, close to two lakh people are engaged in IT sector in the state,” the minister added.

It seems that even as the tax base has considerably expanded post-GST implementation, the buoyancy hasn’t risen to the desired extent and evasion routes haven’t been effectively plugged. On one hand, GSTN, the IT backbone for the tax regime, is still to provide for a foolproof invoices-matching system and comprehensive returns-filing and on the other, the economic slowdown has forced the GST Council to announce series of rate reductions for various industries, in the process making the GST structure complex and incapable of yielding major economic dividends.

Recently, speaking to media persons in New Delhi, Singh hinted that the GST revenue shortfall might have to be continued for three more years after FY22, with probably a reduction in annual growth rate to be assured for states for the post-FY22 period. The Council, however, could not take a call on this, as the Centre opposed the idea.

Source : Times of India