GST: Centre to compensate state for Rs 5,500-crore tax revenue loss

Ruchika M Khanna

Tribune News Service

Chandigarh, October 21

The Centre has acceded to poll-bound Punjab’s demands while fixing the compensation to be offered to the states after the rollout of the Goods and Services Tax (GST) regime next year. The state now stands to benefit by Rs 10,500 crore per annum for the next five years.

The Central Government has agreed to compensate the state for the Rs 5,500-crore tax revenue loss that is not accounted for in its consolidated fund. The Union Government has also accepted Punjab’s demand — despite opposition from several states — to fix a secular rate of growth for the compensation to be awarded to the states. States such as West Bengal, Uttar Pradesh and Kerala had demanded that it should be based on the growth in the respective states’ own tax revenue.

Punjab’s own tax revenue was just 9.5 per cent in 2015-16, 4 per cent in 2014-15 and 2 per cent in 2013-14 — an average of barely 5 per cent. During a meeting held earlier this week, it was decided that a growth rate of 14 per cent per annum for five years be maintained. This would translate into a jump in Punjab’s revenue by Rs 5,000 crore per annum.

Finance Minister Parminder Singh Dhindsa, who negotiated the deal with the Centre, told The Tribune that initially only the funds audited by the Advocate General – the consolidated fund — were proposed to be compensated for by the Centre.

“We argued that all funds outside the consolidated fund, such as Rs 2,000 crore devolved to the local bodies from VAT collections, and the infrastructure development cess of Rs 1,500 crore per annum be given to the state as compensation. This is a case unique to Punjab, but the Centre finally agreed. Even the Rs 2,000 crore input tax credit adjustments and reversals will be reimbursed,” he said, adding that the state would now get Rs 5,500 crore per annum which the government was fearing it would lose.

Over the past two years, the BJP-led NDA government had been showing its displeasure with the “fiscal mismanagement” in the state. In 2014, Union Finance Minister Arun Jaitley refused to grant a financial package to the debt-stressed state and instead asked Punjab to route all its funds through the consolidated fund and do away with free power subsidy to the agricultural sector.