Hyderabad: Chief Minister K Chandrashekhar Rao on Monday said Telangana State was totally opposed to the Centre’s move to reduce Goods and Services Tax (GST) compensation to be paid to States from Rs 3 lakh crore to Rs 1.65 lakh crore.
Revealing this to the media, Finance Minister T Harish Rao said the Chief Minister wrote a letter to Union Finance Minister Nirmala Sitharaman expressing the State’s opposition to the Centre’s move. “The State government has decided to take up the issue in Parliament and also initiate legal recourse if the Centre refuses to take full responsibility to uphold the GST Act that was passed in the Parliament,” Harish Rao said.
Harish Rao, who held a detailed discussion with the Finance Ministers of West Bengal, Kerala, Chhattisgarh, Delhi and Punjab through video conference, said that legally and morally, the Centre has to fully compensate any shortfall in revenue collections. “It has no other option. The Union government, attributing lower GST collections to an “Act of God,” can’t just deny paying Rs 1.35 lakh crore to States. What will happen if individual tax payers refuse to pay taxes saying that he or she was affected by the lockdown due to Covid-19?” he asked.
Pointing out that the pandemic had affected the States as much as it did the Centre, the Minister said that Telangana, during the past four months, had lost 35 per cent of income, which is to the tune of Rs 8,000 crore. “As a big brother, the Centre must bail out States by paying cess and other funds liberally. Chandrashekhar Rao has time and again said that development of States is also development of the country, but the Union government thinks otherwise,” he said.
Unfortunately, the Centre was trying to avoid paying cess to States, he said, adding that before joining the GST regime, Telangana thought twice as it was a growing States. “In 2016-17, we had a growth rate of 22 per cent. We would have earned Rs 25,000 crore additionally if we had not joined GST,” he pointed out.
“As per the GST Act, States have to be compensated by taking 14 per cent growth rate as base. Who gave the Centre the permission to reduce that limit to 10 per cent unilaterally? Only the Parliament has the right to do that,” he said. He recalled that the Attorney General too had assured that the Centre will fully compensate if the earnings were less than anticipated.
“Telangana joined the GST regime considering national interests and for simplification of taxes. We paid Rs 18,032 crore to the Centre but received Rs 3,200 crore. At the time of joining, then Finance Minister Arun Jaitley assured that the Centre will compensate if the cess was less, and a resolution was passed.
During UPA, the share of Central Sales Tax (CST) to the tune of Rs 3,647 crore was denied to Telangana. Both UPA and NDA have deceived the State,” he said.
Asking the Centre to find alternatives, Harish Rao said the Union government can take loans and pay compensation to States. “The Centre has lot of options. While FRBM (Fiscal Responsibility and Budget Management) limit for States was 3 per cent, it is 5 per cent for the Centre and it can increase the limit if it wants while the States have to take the Centre’s permission. For instance, 16 per cent of income to the Centre comes in the form of surcharges only,” he said.
No option for Centre
“The Chief Minister wrote to the Union Finance Minister stating that Telangana opposes both the options given by the Centre. There are no options. There is only GST Act to follow. In option 2, States have to forgo 1 per cent of FRBM. We were told that either State gets GST cess or 1 per cent of the FRBM whichever is higher. For Telangana, 1 per cent of FRBM is Rs 10,000 crore and expected share in Rs 3 lakh crore GST cess is also Rs 10,000 crore. In Option 1, the Centre reduces compensation to States from Rs 3 lakh crore to Rs 1.65 lakh crore, and States have to forgo Rs 1.35 lakh crore,” Harish said.