Home Finance News Extend GST compensation to states for next 3-5 years: Amit Mitra urges Nirmala Sitharaman

Extend GST compensation to states for next 3-5 years: Amit Mitra urges Nirmala Sitharaman

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Former West Bengal minister Amit Mitra has written to Union Finance Minister Nirmala Sitharaman, urging her to continue with the Goods and Services Tax (GST) compensation to states for another 3-5 years after this month. Mitra, the principal chief advisor to Chief Minister Mamata Banerjee and the state finance department, said the extension of the compensatory arrangement will provide a big relief to the states.

“We note with dismay and ominous signs that the Centre has decided to withdraw the goods and services tax (GST) compensation to the states from July 2022. Such a decision, if taken, is completely contrary to what was envisaged at the time of adoption of GST,” Mitra wrote in the two-page letter on Monday. He claimed that all states, across all political parties, decided to adopt GST on the condition that the Centre would compensate them for revenue loss for five years.

“You will appreciate that in 2016 when the said decision was made, none of us could have predicted that the world would be hit by the Covid pandemic of this magnitude. Nor could we have guessed that the economy of the world and of course, that of India, would under be unprecedented stress, due to this pandemic,” he said in the letter to Sitharaman.

Mitra, the then finance minister of West Bengal, was also the chairperson of an empowered committee of finance ministers that met in Kolkata on June 14, 2016, to deliberate on whether the GST could be adopted by the states and the Centre.”It so happened that I was then the chairperson of the empowered committee of finance ministers of states, which took this landmark decision. Subsequently, the then union finance minister and I, on behalf of all the states, made the announcement before the media about our unanimous agreement on GST compensation to the states for five years,” he mentioned.

Mitra also said the complete lockdown followed by partial restrictions during the last three years has severely undermined the basis of the decision of the empowered committee taken in 2016.”I hope you will agree that it would be most logical to continue to provide GST compensation to the states for the next 3 to 5 years beyond June 2022 to provide much-needed relief to the state finances,” he said in the letter.

The former West Bengal finance minister also said the unforeseen battle against the pandemic has put the fiscal health of the states under huge stress.“…the impact of the pandemic continues to adversely affect our economy. The supply chain in manufacturing, services and agriculture is still broken. The MSME sector is struggling to survive and the informal/unorganised sector, which provides unemployed employment to more than 90 per cent of the labour force, remains severely fractured,” Mitra stated. On top of that, the massive inflationary pressures have “severely aggravated and impaired the economics of states, he said. The GDP has not yet reached the pre-pandemic levels and is not likely to reach a desirable trajectory anytime soon, Mitra added.

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