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States' Budget demand: 60% GST share, extended compensation period

New Delhi / Chennai / Kolkata. November 25, 2022

State finance ministers demanded greater fiscal autonomy through an increase in states' share in goods and services tax (GST) to 60 per cent, from 50 per cent at present

State finance ministers in their customary pre-Budget consultation with Union Finance Minister Nirmala Sitharaman on Friday demanded greater fiscal autonomy through an increase in states’ share in goods and services tax (GST) to 60 per cent, from 50 per cent at present, and an extension of the GST compensation period by another five years.

Chhattisgarh Chief Minister Bhupesh Baghel, who also holds the finance portfolio, asked Sitharaman to return the money to the tune of Rs 17, 240 crore lodged in the New Pension Scheme, so that the amount could be put in a separate fund that would serve as both provident fund and social security fund to meet pension obligations in the future. Baghel assured the Union government that the money would be invested in securities owned by the Union and state government. Chhattisgarh became the first state to notify the restoration of the Old Pension Scheme earlier this year. He also demanded the extension of the GST compensation period for states by another five years.

Kerala Finance Minister K N Balagopal, who also participated in the discussion, demanded an increase in state share in the GST revenue, from the present 50:50 ratio to 60:40 ratio. The state also demanded the extension of the GST compensation period for five more years.

“The Centre and states have an equal share of the GST even though expert committees recommended a higher share for states at 60:40 ratio in view of states’ foregoing part of their fiscal domain. Moreover, it is to be noted that as per the 15th Finance Commission Report, 62.7 per cent of total receipts are being taken by the Union government, while 62.4 per cent of the expenditure commitments are on the shoulders of state governments,” he said.

States like Kerala and Tamil Nadu also flagged the issue of merging cesses and surcharges into basic rates of tax, so that states receive their legitimate share. “Cesses and surcharges, as a percentage of gross tax revenue, have increased manifold from 10.4 per cent in 2011-12 to 26.7 per cent in 2021-22. This has deprived states of their legitimate share of revenue collected by the Union government,” Tamil Nadu Finance Minister P T R Palanivel Thiagarajan reportedly said.

"All states, irrespective of political parties, expressed a common theme -- states' fiscal autonomy is greatly constrained by the extent of centrally sponsored schemes, by the extent of changing ratios of funding of such schemes,” Thiaga Rajan added.

Amit Mitra, principal chief advisor to the chief minister of West Bengal on finance, said the additional chief secretary and the finance secretary representing West Bengal were not given a chance to speak at the meeting.

“We should have followed the principle of the GST Council, which is the only federalist institution left in the country where all states and Union Territories are represented. The tradition followed in that meeting is that first chief ministers speak, then ministers, and finally, officials. So every state’s voice is heard. Here our voice was not heard because the additional chief secretary and the finance secretary representing the state were not given a chance to speak," he added.

Mitra said that there were several issues that the state wanted to raise, such as the release of funds on time. “The compensation for the month of June for the GST shortfall has come today and this is just a case in point," he added.

The Centre on Friday released Rs 17,000 crore to states/UTs towards the balance GST compensation for April- June 2022.

After the meeting, the finance ministry in a statement said: “Most of the participants thanked the Union finance minister for financially supporting their states/Union Territories by enhancing borrowing limits, providing two advanced devolution instalments and through special assistance for capital expenditure. The Union finance minister thanked the participants for their inputs and suggestions towards the Budget 2023-24 and assured to examine each of the proposals,” it added.

- With PTI inputs

[The Business Standard]