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States suggest GST compensation cess for 5 more years, higher central spending

Under GST law, states are entitled for compensation on account of revenue shortfall in the first five years of the new indirect tax regime from July 2017 to June 2022. 

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New Delhi: In the crucial pre-Budget meeting with Finance Minister Nirmala Sitharaman, State Finance Ministers on Thursday pitched for extending GST compensation cess for 5 more years, rationalise cess and surcharge on auto fuels and hiking financial support for ramping up health infrastructure in the wake of rising Corona cases.

Under GST law, states are entitled for compensation on account of revenue shortfall in the first five years of the new indirect tax regime from July 2017 to June 2022. 

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Talking to reporters after the meeting, Kerala Finance Minister KN Balagopal said that he had urged Finance Minister to extend the GST compensation cess for 5 more years as revenue collection of the state has been affected due to Covid-19. 

He also pointed out that there is often delay in release of GST compensation forcing states to go for short-term borrowing to tide over the revenue shortfall. Balagopal also raised the issue of cess and surcharge especially on diesel and petrol saying that there has been a tendency in recent past to increase cess and surcharge by central government.

He noted that the increased cess and surcharge and cess does not form part of the sharable pool and hence states are net losers. 

The Minister has urged Sitharaman to either remove or reduce the cess and surcharge in general and on petrol and diesel in particular.

Delhi Deputy Chief Minister Manish Sisodia said that almost all states including Delhi want continuation of GST compensation for states beyond 2022. 

“This is big issue with all states and if this compensation is not extended, financial position of states could deteriorate,” he said. 

All-powerful GST Council chaired by Union Finance Minister Sitharaman would meet in the national capital on December 31. 

Chhattisgarh Chief Minister Bhupesh Baghel is also learnt to have told Sitharaman in pre-Budget meeting today to provide GST compensation to manufacturing states beyond June 2022.

“Have requested FM to provide GST compensation for manufacturing states beyond June 2022. All the manufacturing states have supported my proposal,” Baghel said after pre-Budget meet.

Among other key suggestions, the state Finance Ministers proposed higher fund allocation under centrally-sponsored schemes especially in health sector and front-loading of infrastructure capex.

Kerala has suggested to introduce state-specific packages in Union budget to rejuvenate production and quality employment in agri, agro-processing, MSME and other unorganised services sectors.

A statement from Finance Ministry said that participants from states and Union Territories (UTs) thanked the Union Finance Minister for providing financial support during the worst months of pandemic by enhancing borrowing limits, providing back to back loans to States, and through special assistance for capital expenditure. 

“The Finance Minister thanked the participants for their inputs and suggestions towards Union Budget 2022-23 and assured to examine each of the proposals,” the statement noted.

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