Jayalalitha writes to PM on GST issue

Chenna: The Tamil Nadu government today said non-implementation of the Goods and Service Tax (GST) from April 1, 2010 should not be the ground for stopping Central Sales Tax compensation to states, whose revenue loss is "substantial and permanent".

"Since it is the Government of India`s responsibility to introduce GST by evolving a consensus and by putting in place appropriate mechanisms, the states cannot be expected to bear the loss on account of its failure to introduce GST," Chief Minister Jayalalithaa wrote to Prime Minister Manmohan Singh, seeking his personal intervention to sort out the issue.

Jayalalithaa said, "Government of India has a moral responsibility to compensate states till GST is introduced." The CST rate was reduced only as a precursor to introduction of GST, she said.

"Non-implementation of GST from April 1, 2010 should not be taken as a ground to stop the CST compensation and the Government of India has to provide compensation till GST is introduced as the revenue loss suffered by the states is substantial and permanent," she said.

Drawing Singh`s attention to compensating states for loss in revenue due to reduction of rate of CST for 2010-11 and subsequent years, she said the Chairman of the Empowered Committee of State Finance Ministers had already conveyed the objections of state governments, including Tamil Nadu. "But it is unfortunate that the Government of India is still sticking to its unreasonable stance," Jayalalithaa said.

The Chief Minister said though the Centre had agreed to compensate states for revenue loss for 2010-11 also, the eligible compensation for 2010-11 was "arbitrarily" restricted by deducting additional revenue realised through revision of Value Added Tax rate from four per cent to five per cent.

"…the action of the Government of India in linking CST compensation with the additional revenue on account of VAT rate revision is unilateral, arbitrary and untenable. There is no link between CST rate reduction and VAT rate enhancement.

It was never a part of the guidelines for CST compensation," Jayalalithaa said.
Secondly, she said, the decision to stop CST compensation from 2011-12 is "equally objectionable".

Noting that states like Tamil Nadu suffer huge revenue loss on account of CST rate reduction, Jayalalithaa said Tamil Nadu could have realised an additional revenue of Rs 2,000 crore between 2007-08 and 2010-11, even after taking into account the Centre`s compensation.

This tax loss pushed back the revenue base to a lower level and the state continues to suffer incremental revenue loss which is in the range of Rs 1,500 crore to Rs 2,000 crore per annum in the next three years, she said.

"I must also point out that such unilateral and unreasonable actions by the Government of India do not augur well for fostering a spirit of cooperative federalism especially at a time when the Government of India is trying to build a consensus among the states for GST," she said.

She said revision of VAT rate from four per cent to five per cent should not be linked to the CST compensation for 2010-11 as it was not part of the original compensation package and the VAT revision had nothing to do with the CST.
"If further delay is expected in implementing GST, then the CST rate must be restored immediately to the original four per cent," Jayalalithaa said.