Mamata Banerjee writes to PM Modi; expresses 'anguish over GST imbroglio'

West Bengal Chief Minister Mamata Banerjee on Wednesday alleged that depriving states of GST compensation is an "attempt to undermine federalism". Maintaining that it was imperative to strengthen cooperative federalism in this crisis situation, Mamata urged Prime Minister Narendra Modi not to belie the trust between the states and the Centre on the issue.

In her letter to PM Modi, Banerjee asked him "not to allow an insufferable blow to the federalist polity of the nation by depriving the states of the GST compensation". She further added that the "agreed formula" for giving up taxing powers was the promise of full compensation of shortfall in GST collection for five years. 

"I am deeply anguished by the Goods and Services Tax (GST) imbroglio which tantamounts to a betrayal of the trust and moral responsibility of the Government of India towards the states, violating the very premise of federalism. This is a travesty and an abrogation of the fundamental basis on which the states gave up 70 per cent of their taxing powers, including the entire VAT regime, to usher in the GST regime," Banerjee said in the four-page letter.

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Centre's two options to States

The Centre has calculated the compensation requirement by the states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the GST regime. Revenue Secretary Ajay Bhushan Pandey said of this, Rs 97,000 crore is on account of GST shortfall, while the rest is due to the impact of COVID-19 on the economy. Centre has reportedly refused to pay mandatory GST compensation of 14% for the current year due to COVID-19 pandemic.

To alleviate state's GST stress, Revenue Secretary Ajay Bhushan Pandey said a special window can be provided to the states at a reasonable interest rate for the borrowing of Rs 97,000 crore - the amount can be repaid after five years (of GST implementation) ending 2022 from cess collection.

The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window. "States have been given seven days' time to think over the proposal," Pandey said.

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(With inputs from ANI)