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Tamil Nadu chief minister Edappadi K Palaniswami

CHENNAI: Tamil Nadu chief minister Edappadi K Palaniswami on Monday placed the onus on the Centre for “borrowing” to compensate the GST shortfall of the states.
In a letter to Prime Minister Narendra Modi, the chief minister said, the Centre has a moral and legal obligation to pay the compensation for the shortfall in GST collections.
“Most states, in particular Tamil Nadu, agreed to the implementation of GST and to support the legislation on the basis of the unequivocal commitment given by the central government to compensate the states for any revenue loss. Such compensation is clearly assured in the 101st Constitution Amendment Act and in the GST (Compensation to States) Act, 2017,” Palaniswami said in his letter.
So far, no compensation has been released for the shortfalls in revenue collection since April 1, 2020.
As on date, a total sum of Rs 12,250.5 crore is due to Tamil Nadu as compensation for shortfall in GST collections, of which Rs 11,459.37 crore has accrued from April to July, 2020, he said.
“As you are aware, the states have suffered a severe loss in revenue in the wake of the Covid-19 pandemic and have also been at the forefront of the battle to prevent the spread of the disease,” he added.
‘Our stance has consistently been that the Government of India has a moral and legal obligation to pay the compensation for the shortfall in GST collections. We had also indicated that it was for the Government of India to find the necessary funds to compensate the states, including from the consolidated fund of India, if there was a shortfall in the cess collections,” CM Palaniswami said.
The chief minister also expressed concern over the two options that have been offered to states after the GST council meeting held on August 27.
“My first concern is that in both the options suggested by the Government of India, the states are being required to borrow from the market to make good the shortfall in compensation due. This is administratively difficult to implement and more expensive,” he said, while adding that the reasons cited for such an arrangement are not persuasive.
“Whether the Government of India borrows or the state governments borrow, for rating agencies and others who monitor the macro-economic indicators, it is the overall general government deficit and borrowing that is relevant. The argument that states borrowing for what is essentially a Government of India obligation is a seemingly better optical arrangement does not appear to be a strong or valid reason. Hence, I reiterate Tamil Nadu government’s stance that the Government of India should advance funds to the GST compensation cess fund, if need be, by borrowing in the market and service the debt by an extension of the compensation cess,” Palaniswami said, categorically upping the ante against the Centre.

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