Key opposition-ruled states have vigorously challenged the Center’s GST deficit estimate for fiscal year 22, claiming an underestimation of at least Rs 55,000 crore in the projections.
They have also requested additional compensation of Rs 65,000 crore for FY 21. The states argue that real revenue growth in the 10 months from April to January was negative versus a 7 percent expansion estimated by the Center on last year. “We do not agree with the Center’s estimate regarding GST’s offset requirement for fiscal year 22. It has underestimated the offset requirement by at least Rs 55 billion and it should be reviewed as soon as possible,” said a finance minister of the state.
He said that according to the state’s assessment, the compensation requirement in fiscal year 22 will be 3.23 trillion rupees. “This means that the borrowing requirement is not Rs 1.58 trillion, but Rs 2.13 trillion as the rest is expected to be covered by tax collection.”
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On Friday, the Finance Ministry proposed a market loan of Rs 1.58 trillion to compensate states for the GST deficit through back-to-back loans, like last year, assuming 7 percent growth in revenue. .
The GST offset requirement has been set at Rs 2.7 trillion for FY 22, of which Rs 1.1 trillion is likely to be met through tax collection.
Another state finance minister said that real growth in the April-January period, for which the loan was taken, was actually (-) 3 percent instead of the assumed 7 percent. According to him, this translates into an additional borrowing requirement of Rs 63,248 million for the Center to fully compensate the states. Chhattisgarh Health Minister TS Singh Deo, who represents his state on the council, argued that most states were not satisfied with this year’s compensation projection. How can the 7 percent become a precedent? Every time there is a deficit «.
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Kerala Finance Minister KN Balagopal said that assuming 7 percent growth for fiscal year 22 may not be correct and steps should be taken to revise the estimate. “In Kerala, we are doing a lot of social work and Covid-19 related activities that the Center is not helping for. At the very least, the Center should compensate the states for the GST immediately. We need payments. Assuming 7 percent growth in fiscal year 22 is not correct. The council and the Center must take corrective action.
Punjab Finance Minister Manpreet Singh Badal said: “We need to calculate compensation in the manner prescribed in Section 7 of the GST Compensation Law. Anything done otherwise is arbitrary. We cannot apply a composition of 7 per cent on an already arbitrary growth rate of the previous year to calculate the real income «.
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Meanwhile, the Center has projected a gap of Rs 30,000 crore spilled from last year, which it expects to cover through a proposed Rs 1.58 trillion loan for fiscal year 22.
While the 2021-22 budget has estimated that GST revenue will grow 17 percent from last year, the target seems challenging, given that localized closures across the country have affected supplies.
Last year, the Center had estimated a GST offset requirement of Rs 2.35 trillion, of which Rs 1.1 trillion was covered by loans and another Rs 70 billion came from the collection of offset taxes. This leaves a gap of 55 billion rupees. This the government had promised to fulfill over time.
Aditi Nayar, Chief Economist at ICRA Ratings, said: “In our assessment, in fiscal year 22, the gap between the GST requirement and the tax collection is likely to be Rs 1.65 trillion, which is very similar. to the amount of 1.58 trillion rupees estimated by the ministry. of finances. However, the side effects from last year to this year are unclear at this time.
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