TN FM seeks unconditional borrowings of 5% GSDP for FY23 owing to Covid

TN FM also seeks merging cesses, surcharges into pool of taxes shared with states

Tamil Nadu finance minister Palanivel Thiaga Rajan (PTR) has on Thursday sought for merging of the cesses and surcharges into the basic rates of tax to raise the share of states by an additional Rs 1.5 trillion from the pool of Central taxes.

In his speech at a pre-Budget meeting today, ahead of the GST Council meeting on December 31, he said that the increased levy of cesses and surcharges, which do not form part of the divisible pool of taxes, has adversely affected the transfer of resources to the states. Cesses and surcharges as a proportion of the Gross Tax Revenue of the Centre have almost tripled from 6.26 per cent in 2010-11 to 19.9 per cent in 2020-21.

“States are deprived of a share in approximately 20 per cent of the revenue collected by the Union. If these taxes were added to the divisible pool, the States would have obtained an additional transfer of approximately Rs 1.5 trillion as their share from the pool of central taxes in FY 2021-22,” Thiaga Rajan said.

He also urged the Centre for immediate release of the pending GST compensation of Rs 16,725 crore in the upcoming Budget and also extend the period of compensation by atleast two years beyond June 2022. “During the introduction of GST, the State accepted to forego its fiscal autonomy with an assurance from the Union Government that our revenues will be protected. In the last five years, there has been a wide gap between the actual revenues realized and the protected revenues guaranteed,” he added.

The Tamil Nadu minister added that a substantial amount of dues are pending from the Union Government for schemes shared between Centre and States, this comes to the tune of Rs 17,000 crore. “Further, the Performance Grants from 2017-18 to 2019-20 to the tune of Rs 2,029.22 crore and the basic grant of Rs 548.76 crore for 2019-20 under the 14th Finance Commission are pending. These dues have a considerable impact on the fiscal calculations of the State which are already under severe stress due to the pandemic,” he added.

PTR added that the Centre should permit borrowing of 5 per cent of GSDP without any conditions for FY23. At present, the Union Government has set pre-conditions for availing additional borrowing limit of 1 per cent (0.5 per cent for capital expenditure and 0.5 per cent for Power sector reforms) of the GSDP.

The minister added that the recent decision by the GST council and the Union Government to increase the rate of tax from 5 per cent to 12 per cent for the textile and apparel sector is problematic on several counts. “The rise in taxes will increase the financial burden on already-stressed MSME textile and handloom sectors, which are reeling under the effects of the Pandemic. I urge the Union Government to re-examine this decision and roll-back the increase in taxes,” he added.