A day ahead of the crucial 41st GST Council meet to discuss a single point agenda to iron out measures to meet the compensation requirements for the states, West Bengal Finance Minister Amit Mitra has written to Union Finance Minister Nirmala Sitharam urging the Centre to honour the constitutional promise to pay compensation for 5 years.

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CNBC-TV18 has accessed the letter by Mitra and he has suggested that the “Centre must pay the compensation from different cesses that it collects, as it is not getting devolved to the states.”

Mitra has also expressed concerns over delayed compensation payments. The Centre hasn’t paid states any compensation promised under the Constitutional Amendment Act paving way for the roll-out of GST for the current fiscal.

Mitra added that he is greatly “alarmed” by news emanating statements by Finance Secretary that “ Central Government is not in a position to pay GST Compensation due to dip in a collection meant for compensation.”

Mitra has further urged that centre should “not to renege on their commitments to compensate the states and honour its responsibility towards the states.”

Rather he has gone ahead to say that “in case of a shortfall, it is the responsibility of the centre to garner resources for fully compensating the states, as per the formula agreed upon with the states.”

Also, reiterating what other states to have told Sitharaman, that “Under no circumstances, the states should be asked to borrow from the market as it will increase their debt servicing liability. Further, it may lead to a cut in the state's expenditure which is not desirable at this juncture when the economy is witnessing severe recessionary trend.”

Talking to CNBC-TV18, Kerala FM Thomas Isaac too added that the states should not be asked to borrow.

He has suggested that the best way out is, “GST Council should borrow from the market with sovereign backing and this can be paid through compensation cess collections, for a longer period.”

Apart from this, according to sources, some of the key measures which will be up for discussions at the Council in the 41st meeting on 27 August includes the proposal sent by some states on hiking the cess percentage on sin goods or probably an expansion of the cess kitty.

Government sources, however, say that it is expected that the council might not want to take this call considering the tough economic situation due to the pandemic.

The Centre is also likely to propose the idea to go in for serious measures for better and efficient revenue realization measures for both the central and state GST collections.

Here is the full letter sent by the West Bengal FM:

Amit Mitra Letter by CNBCTV18 Digital on Scribd

First Published:Aug 26, 2020 8:01 PM IST