Extend GST Compensation to States for Next 3-5 Yrs: Former WB Minister Amit Mitra urges FM

Former West Bengal minister Amit Mitra has written to Union Finance Minister Nirmala Sitharaman, seeking her to extend the GST compensation to states for another 3-5 years after this month’s deadline. The extension of the compensation arrangement, according to Mitra, the principal chief advisor to Chief Minister Mamata Banerjee and the state finance department, will bring a significant relief to the states.

“We observe with dismay and alarming indicators that the Centre has chosen to stop compensating states for the goods and services tax (GST) starting in July 2022. If such a judgement is made, it will be in direct opposition to what was intended when the GST was enacted” On Monday, Mitra sent a two-page letter.

The unexpected war against the epidemic has put the states’ fiscal health under severe strain, he wrote in the letter.

He said that all states, regardless of political affiliation, agreed to implement GST on the condition that the federal government reimburse them for revenue losses over a five-year period. “You will understand that none of us could have imagined that the world would be attacked by a Covid epidemic of this magnitude in 2016, when the decision was made. We could not have predicted that the global economy, including India’s, would be put under unprecedented strain as a result of the epidemic “In his letter to Sitharaman, he stated.

“Additionally, significant inflationary pressures have badly worsened and harmed the economies of states that are already grappling with massive fiscal obligations.” The GDP has not yet recovered to pre-pandemic levels, and it is unlikely to do so anytime soon, according to the letter.

States were guaranteed compensation for any revenue losses for the first five years of GST implementation, beginning July 1, 2017, under the GST law, and numerous states have requested an extension of the compensation period.

The Empowered Committee of State Finance Ministers met in Kolkata on June 14, 2016 to discuss whether the states and the Centre might approve GST, according to Mitra’s letter. Mitra was the Empowered Committee’s chairperson at the time.

All states, regardless of political affiliation, agreed to implement GST on the condition that the Centre agree to pay the states for a five-year revenue loss.

“I hope you would agree that continuing to pay GST compensation to the states for the next 3 to 5 years beyond June 2022 would be the most sensible thing to do to provide much-needed assistance to state finances,” he wrote in the letter. The unexpected war against the pandemic, according to the former West Bengal finance minister, has put the states’ budgetary health under severe strain.