A Good-Faith Decision Will Be Only Solution, Says Pazhanivel Thiagarajan

All states present at the Goods and Services Tax Council meeting urged the government to extend the compensation for 2-5 years but there was no resolution, according to Tamil Nadu’s Finance Minister Pazhanivel Thiagarajan.

“As far as I can remember, the discussion was kicked off by Karnataka Chief Minister Basavaraj Bommai and all states present also asked for extension of [GST] compensation,” Thiagarajan said after the June 28-29 GST Council meeting concluded in Chandigarh. “…Only a few states said the compensation is a double-edged sword as it gives room for some states to not tune up their systems, and that it must be thought-out carefully.”

Indicating that the last word must lie with the consensus of the council in accordance to the spirit of cooperative federalism, he said, “We were all in the room and we have all made requests, but it didn’t come to a resolution.”

“…Considering that the GST Council is federal and operates on state consensus, how will any decision (if devised) between today and the next meeting (without states’ input) be in the spirit of cooperative federalism?” he said. “If the matter is put to vote, all states would agree for an extension in compensation.”

When the GST was instituted in 2017, states were assured compensation for the loss of revenue arising from its implementation. The additional revenue support was assumed at a yearly compounded growth rate of 14% for five years. This support, guaranteed by the Constitution, ends on June 30, 2022.

Union Finance Minister Nirmala Sitharaman, in her briefing on Wednesday, said “the states were heard” on the issue of compensation. But a conclusive response to it was neither conveyed nor implied.

According to Thiagarajan, there are other sophisticated structuring possibilities to give states some compensation. “Only a good-faith decision with good quantitative accounting and analysis would give a solution.”

In Tamil Nadu’s budget revenue projections, the state accounted for the compensation amount only till June, along with other dues owed to it at the time of presentation at the state assembly on March 18, 2022.