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Why Centre’s Stance on GST Compensation is Utterly Bizarre -Prabhat Patnaik

-Newsclick.in

Finance Minister Nirmala Sitharaman invoking ‘Act of God’ to deny states their promised dues, not only violates an Act of Parliament but also defies economic logic.

When the Goods and Services Tax (GST) was introduced, and states virtually gave up the power to levy indirect taxes which they had enjoyed under the Constitution, the Centre had solemnly promised that it would compensate them for five years for any revenue shortfall arising from the shift to GST.

The shortfall was to be assessed relative to what revenue should have been, assuming a 14% rate of growth. It is this promise which had persuaded many states to fall in line behind the GST. And Parliament had enacted the GST (Compensation to States) Act 2017 to legalise this promise.

The, GST, however has been singularly unsuccessful in garnering revenue, partly because of its own infirmities and partly because of the slowing down of GDP (gross domestic product) growth. Likewise, the GST cess, which is supposed to finance the compensation payment to states, has also failed to garner adequate revenue. While the states’ revenue growth, therefore, has been sluggish and hence the need for compensation, particularly large and urgent, the fund out of which such compensation is to be paid has also shown sluggish growth.

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