Tamil Nadu is calling for an extension of the compensation period promised to states after the introduction of the goods and services tax.

In 2017, when the Goods and Services Tax was introduced, in exchange for giving up their tax rights, states had been given assurances that the center would compensate them for any loss of income for five years, assuming an increase in indirect taxes of the states by 14%. turnover per year. The center has since levied a fee on luxury items and sinful goods to fund this fee.

The period of compensation will end in June this year, although arrears from previous years will continue to be paid to states.

In his budget speech on March 18, Palanivel Thiaga Rajan, the finance minister of Tamil Nadu, said the end of the compensation will mean that Tamil Nadu will experience a loss of revenue of about Rs 20,000 crore.

The former banker-turned-politician also called for more “untied” subsidies from the central government, which would give the state more flexibility in spending.

“The Fifteenth Central Finance Commission has recommended certain sector-specific and state-specific grants. We are urging the Union government to decouple these grants, rather than linking them to ongoing centrally sponsored and central sector schemes,” said Thiaga Rajan.

The Fifteenth Central Finance Commission has recommended a 4.079% share for Tamil Nadu in the shareable tax pool. The state has been allocated Rs.21,246 crore as the local body grant for a period of five years, compared to the Rs.17,010 crore allocated by the Fourteenth Central Finance Commission.

Tamil Nadu will see a reduction in the absolute level of the revenue deficit by more than Rs.7,000 crore in FY22. This reverses a trend of increasing deficits since 2014, said Thiaga Rajan.

For the fiscal year 2022-23, Tamil Nadu hopes to reduce the budget deficit to 3.5% of the state’s gross domestic product. Nominal GSDP growth for Tamil Nadu is estimated at 14% in 2022-23

The state, under the medium-term budget plan, will see revenue expenditures rise 9.6% in FY23 from revised FY22 estimates. Capital expenditures are expected to increase more strongly by 13.46%.

“As we see the economy recovering, we need to rebalance our priorities and focus on social infrastructure and development without compromising on social security schemes,” said Thiaga Rajan.

The state plans to borrow a net amount of Rs 90,116 in FY23. This excludes an amount of Rs 6,500 crore expected from the central government for back-to-back loans for GST shortfall compensation.

The state’s outstanding debt as a percentage of the GSDP is expected to reach 26.29% at the end of FY23, falling to 25.93% in 2024-25, which is within the standards mandated by the Fifteenth Finance Commission . “The state thus aims to maintain debt sustainability as part of its fiscal consolidation roadmap,” the medium-term framework said.


This post Tamil Nadu calls for extended GST compensation period was original published at “https://www.bloombergquint.com/business/tamil-nadu-argues-for-extended-gst-compensation-period”

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