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The Modi Government is Cornering Public Funds via PM CARES While Robbing States of GST Share

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20.09.2020

The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020 is deeply problematic because it further weakens the rights and resources available to the states by taking away the statutory promises made under the new GST regime and while on the other hand cornering public funds for PM CARES to the direct disadvantage of state relief funds.

Clause 7 of the Bill seeks to amend the Central Goods and Services Act of 2017, allowing the government to extend the time-limit for completion of actions under the Act in events of force majeure (such as an “epidemic”) with retrospective effect. This will permit the government to retrospectively validate its failure and extend the time-limit indefinitely while disbursing compensation to states.

Does the finance minister conveniently forget that GST was made possible because the states ceded almost all their powers to levy local level indirect taxes? The underlying promise made to the states while accepting this was that revenue shortfalls arising from the transition to GST would be made good from a “pooled GST compensation fund” for a period of five years ending in 2022. This corpus was to be funded by a compensation cess levied on so called “demerit goods”. The mechanism for this is spelt out in Section 7 of the GST Act 2017 which you now seek to destroy.

Also Read: The Great GST Impasse Threatens India’s Federal Structure

This quantification was to be done annually by projecting a revenue assumption on 14% compounded growth on the revenue of the base year (2015-16) and calculating the difference between that figure and the actual GST collections of any year. Applying this promise to the states for the year 2020-2021, the anticipated shortfall is 3 lakh crore rupees. The compensation pool, however, has only 0.65 lakh crore rupees. The Centre cannot shy away from its responsibility and MUST cover the shortfall of 2.35 lakh crore. I ask myself in such a situation can sheer incompetence bordering on negligence be force majeure? Perhaps this is new and evolving jurisprudence which our finance ministry wishes to announce with its next midnight dhamaka? This sends a terrible signal to parties entering commercial contracts, giving them an easy way out from fulfilling obligations and adding to the terrible mess that our economy is in.

Also Read: Would Narendra Modi Please Care to Answer Some Questions About PM-CARES?

The second insidious objective of this Bill is........

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