Palanivel Thiaga Rajan hits out at Centre on non-extension of GST compensation period, levy of cess

Because of Centre’s refusal to extend the period, States will be deprived of a vital source of revenue from now on, says T.N. Finance Minister

Finance Minister Palanivel Thiaga Rajan in his budget speech said despite multiple representations from the States, the Union government refused to extend the original GST compensation period.

The GST was introduced on July 1, 2017, and June 30, 2022 marked the end of the transition period during which the States were compensated for any loss in revenue due to the implementation of the new tax regime, calculated as the difference between the projected revenue based on a 14% annual growth with 2015-16 as the base year and the actual GST revenue.

The Centre refused to extend the compensation period beyond five years and hence States would be deprived of a vital source of revenue from now on, Mr. Thiaga Rajan said. He also pointed out that the State’s share of Central taxes is estimated at ₹38,731.24 crore in revised estimates for 2022-23 and at ₹41,664.86 crore in 2023-24 in line with the projections in the Union budget.

While there is an increase, it continues to be far less than what should have been devolved to the states but for the indiscriminate levy of cesses and surcharges by the Union government, Mr. Thiaga Rajan noted.

He also said the grants-in-aid from the Union government is estimated at ₹39,748.42 crore in the revised estimates for 2022-23 (including the payment of GST compensation arrears of ₹16,214.83 crore) and at ₹27,444.64 crore in 2023-24, which includes a sum of ₹4,572.82 crore that is expected as arrears in GST Compensation.

The Finance Minister noted that excluding the settlement of GST compensation arrears, the total funds received from the Union government (the aggregate of both share in taxes and grants-in-aid) annually have dropped by roughly 1% of Gross State Domestic Product (GSDP) when compared to 2014-15, which translates to a reduction of about ₹24,840 crore in 2022-2023 and ₹28,327 crore in 2023-2024.

He pointed to the challenging times ahead due to unprecedented inflation, the continuing war in Ukraine and volatility in the global economy and financial markets. “We have outperformed by growing faster than the national average in the previous year and by significantly lowering the revenue deficit and fiscal deficit when compared to that of the Union government”, Mr. Thiaga Rajan said.