West Bengal Chief Minister Mamata Banerjee on Wednesday wrote to Prime Minister Narendra Modi that depriving states of GST compensation is an "attempt to undermine federalism" and urged him not to belie the trust between the states and the Centre on the issue.
Attorney General K K Venugopal's opinion that it is not the responsibility of the Centre to compensate the states for Goods and Services Tax (GST) shortfall during a pandemic "appears to be an act of subterfuge", Banerjee said in the letter.
In the 41st meeting of GST Council on August 27, Union Finance Minister Nirmala Sitharaman said that the COVID-19 pandemic is an "act of God" which has hit GST collection and ruled out paying compensation to states from its coffers.
"On behalf of Bengal and other states, I sincerely urge you not to belie the trust between the States and the Centre on matters of GST which has been hailed globally as the finest example of cooperative federalism," Banerjee said.
Banerjee asked Modi not to allow "an insufferable blow to the federalist polity of the nation" by depriving the states of the GST compensation.
"I am deeply anguished by the Goods and Services Tax (GST) imbroglio which tantamounts to a betrayal of the trust and moral responsibility of the Government of India towards the states, violating the very premise of federalism.
"This is a travesty and an abrogation of the fundamental basis on which the states gave up 70 per cent of their taxing powers, including the entire VAT regime, to usher in the GST regime," Banerjee said in the four-page letter.
The "agreed formula" for giving up taxing powers was the promise of full compensation of shortfall in GST collection for five years, she said adding that the Centre is duty-bound to give compensation to the states.
She reminded Modi that as the chief minister of Gujarat, he had opposed implementation of GST and the late BJP leader Arun Jaitley had stated that the saffron party did not trust the Centre in honouring compensation of GST losses to the states.
"His words are ringing in our ears as we are losing trust on the BJP Government in the Centre, in honouring its solemn, promise of fully compensating GST losses to the states," Banerjee said.
As per the Centre's calculations, the compensation requirement of states in current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore would come from levy of cess.
Out of the shortfall of Rs 2.35 lakh crore, the shortfall due to GST implementation is Rs 97,000 crore and the remaining is due to COVID-19 impact.
The Centre has given two options to states -- to either borrow the entire Rs 2.35 lakh crore or borrow only Rs 97,000 crore through a special window, which would be provided by the RBI, to meet the revenue shortfall.
The chief minister said that despite assurances, states are being thrust with "two unilateral options, both of which require the States to borrow lakhs and crores of rupees."
Instead of helping the states, the Centre has stopped assistance to them and is thrusting more financial burden on them, she said.
"The Centre must borrow to meet the shortfall at this critical hour of the Covid-19 pandemic and I am sure that the States will reciprocate in supporting a resolution that Cess collection continues beyond the five years till the entire debt of the Centre is totally liquidated, along with the entire interest payment cost," she said.
Stating that the union government has the power to monetise its debt while the states do not enjoy such powers, Banerjee said that the Centre gets much lower interest on such borrowing while the interests are much higher in case of the states.
"Furthermore, Government of India can raise the resources to service its debt, while the States simply cannot service huge additional debts when their finances are on the verge of collapse," she said.
Banerjee said that the attorney general's opinion that it is not the responsibility of the Centre to compensate the states for GST shortfall during a pandemic "appears to be an act of subterfuge to undermine the trust reposed by the States in the spirit of cooperative federalism".
"Thereby, it appears to be an onslaught on the democratic and federal structure of the country," the chief minister said.
West Bengal Finance Minister Amit Mitra recently said that the Centre's suggestion to states to borrow for meeting the shortfall in revenue from GST is "totally unacceptable" as it would destroy their financial health and lead to "brute power of centralism".