Delay in compensation
payment to states brings out the biggest issue with India’s GST model
announced in 2017, the Bharatiya Janata Party (BJP) government led by Prime
Minister Narendra Modi projected India’s Goods and Services Tax (GST) as
country’s biggest and the best tax reform. However, in less than three years,
the cracks are showing up, which, if continue, might result in otherwise from
what the Modi government had claimed initially.
With the implementation of GST, the states lost some of
their major taxation rights. To make up to those losses the Centre promised to compensate
them for the next five years. However, the Centre has not paid GST compensation
dues, paid every two months, of about Rs 1.5 trillion to the states since
Union Minister of Finance Nirmala Sitharaman blamed that the
coronavirus pandemic as “an act of God”
that affected the Centre’s revenue collection and left it with little to pay
the states. As the demand for the payment grew stronger from the states, the
Centre asked them borrow to make up the shortfall.
Many states, especially not ruled by BJP, have written a
letter to Sitharaman rejecting the borrowing option. Some states have even threatened
to go to the Supreme Court.
Speaking to Nikkei Asian Review, G V Joshi, retired
professor of Economics from Mangalore University, “PM Modi’s legacy is in
danger now because he made a commitment in 2014 and 2019 about cooperative
“We have been following the principals of fiscal federalism
i.e. the Centre and the states have been able to maintain their agreements,
irrespective of the crisis. However, the Centre is now leaving the states to
fend for their own, which is unfair on their part,” he added.
“It (BJP) shatters the strength and the hope of the states,
which accepted the GST regime. What the Centre is doing is not constitutionally
valid. The states may now demand the old taxation system. If the delayed
payments and inability to pay dues continue, the states may call for a
rollback,” he estimated.
Some states have
borrowed for survival
On August 27, the Centre provided two options to the states.
1: States borrow Rs 970 billion GST shortfall via RBI window
and Centre refunds the principal and interest after 2022.
2: States borrow entire Rs 2.35 trillion (GST shortfall and
Covid19 related losses) loan from the market, the Centre will only pay the
principal amount after 2022, the interest component will have to be paid by the
Twelve states including Andhra Pradesh, Bihar, Gujarat,
Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh,
Uttarakhand and Odisha so far have opted for the first option
offered by the Centre. Out of the 12 states, 10 states are either ruled by the
BJP or by a BJP coalition. Manipur has opted for the second option.
As the economy started slowing down in September 2019, the GST
collections began to fall resulting in Centre delaying the GST payment. In
December 2019 after Kerala threatened to move to the Supreme Court, the Centre started
clearing the backlog. It released Rs 199.5 billion for October and November
2019 in February while the dues for December, January and February were cleared
in April. The payment of Rs 138 billion for March 2020 was made in July. Payments
for the month of April, May, June and July are yet to be made.
Tax evasion, low GST collection
The Modi government had included the end to tax evasion in
the list of GST’s advantages. However, the GST authorities have not been
successful in fixing the tax leakage.
Anurag Thakur, Minister of State for Finance, had announced
in parliament that Central GST authorities detected GST evasion of Rs 70,206
crore between July 2017 and January 2020. Of this, just Rs 34,591 Crores were
recovered, resulting in a loss of over 35,000 crores.
Vikas Kaushik, a Delhi-based chartered accountant told NAR
that there are many companies that do billing without any stock movement. Such
companies give fake bills to other companies so they can claim the input tax
credit, he added.
“Physical verification is not at par in the current regime
of GST due to which such companies maintain to grow,” he added.
Arun Kumar, the Malcolm Adiseshiah Chair Professor at the
Institute of Social Sciences, stated that the credit for bringing GST goes to
Arun Jaitley who had agreed to compensate the states, but the current cabinet
has failed Jaitley’s efforts.
The GST was implemented owing to the pressure from the
International Monetary Fund, big industries and multinational corporations as
these industries thought they would get huge benefits, Arun highlighted. “Though
the unorganised sector is exempted from GST, due to exemption, they didn’t get
the input tax credit (reducing the taxes paid on inputs from taxes to be paid
on output), so the selling price increased,” he explained.
Owing to that, the demand shifted from the unorganised to organised sector, and initially, the organised sector benefited from it, but later their sales also started going down, he asserted.
101 Stories Around The WebExplore All News