There is a limit to taxing liquor, petrol and diesel, says Manish Sisodia4 min read . Updated: 03 Sep 2020, 11:22 AM IST
- We have to open up the economy with all precautions. Otherwise people who do not die of coronavirus, will die of hunger and frustration
- All the financial management powers have been taken away from states and then you are saying that we should find a middle path. The option they are giving is akin to starving states to death
Non–BJP-ruled state governments are having serious disagreements with the Centre over the borrowing of funds for compensating goods and services tax (GST) shortfall of states at a time when the coronavirus pandemic has dealt a blow to their finances. States such as Delhi, Punjab, Kerala, Telangana and West Bengal have rejected two borrowing options proposed by the Centre at last month’s GST Council meeting. In an interview given to Mint, Deputy Chief Minister of Delhi Manish Sisodia spoke about the state’s finances and why the proposals need to be revised. Edited excerpts:
Economists have pointed out that Centre’s proposal for GST compensation is fair because it offers borrowing options to suit states’ requirements, be it meeting GST shortfall due to the indirect tax reform of 2017 or the shortfall arising from the pandemic. But some states have turned down both options. Is it not an extreme position?
First, the Centre is not giving out freebies and the states are not begging. We, as a state, used to do our own financial management prior to GST rollout. Increasing or decreasing tax rate or widening its scope was all in the hands of states. There was a multitude of taxes. The Centre wanted to replace this multiple tax system with GST. Approximately 70% of state taxes were subsumed into GST with fancy dreams that the Centre showed. They have not been able to implement GST properly. On top of that, there was demonetization and other steps which brought the economy down. We are not begging, but asking for something that has been promised in the Constitution. The GST compensation to states Act has it (promise of compensation), the Constitution has it and the minutes of the GST Council meetings also have it. How will a state function with big revenue deficit? We need to pay salaries to staff. It is not just about the finances but also the trust that the Centre and states share. If this time the Centre goes back on their promises, states will not trust them in future.
A way of raising revenue that central and state governments consider very easy and practical is to raise taxes on items such as liquor, petrol and diesel, which are not covered by GST. Many state governments have used that route to raise revenue in the past. Is that on the table for Delhi?
There is a limit to that. It is a time of crisis and taxes will need to be moderate. That is why we said that central government can borrow. It should use its authority to take loans.
What happened at the meeting of officials of the Centre and states on Tuesday?
The proposal that had been sent by the Centre was what was discussed. We let them know that this is rejected from our end.
What is the direction in which talks are proceedings?
It is not about talks. The Centre has to take a decision. There is no middle path. It (states’ GST compensation right) is set in law. How will states survive? All the financial management powers have been taken away from states and then you are saying that we should find a middle path. The option they are giving is akin to starving states to death.
Without consensus, nothing can happen in the GST Council. How do you see things progressing from here?
The Centre should come up with a proposal that is legal. The one proposed is an illegal proposal. The Council will not agree to an unconstitutional proposal. A proposal within a legal framework will be agreed to. We have given them an option of increasing the cess beyond 2022 but the Centre has to build a proposal.
Other than the Centre fully compensating states for GST shortfall and pandemic related revenue losses, is there anything that you are prepared to accept?
There cannot be a mid-point in a path of lie. Getting betrayed 50% by the Centre is not an option.
You had raised concerns about Delhi not getting disaster relief like other states, something that has to do with Delhi’s Union territory status. Has there been any development on that front?
Delhi can’t borrow, so they have to have special provisions for this. We have given a recommendation to the Finance Commission to allow the central government to treat us like a state because we are handling all subjects barring three.
How is Delhi going to revive the state’s economy?
We have to open up the economy with all precautions. Otherwise people who do not die of coronavirus, will die of hunger and frustration. The country’s economy has contracted by 24%. Delhi’s revenue in the first four months has fallen below the target by 57%. We are now at 43%. No state can survive with this kind of revenue. It is hard to pay salaries to our staff. We need revenue and till such time economic activities, such as construction, does not happen, people will remain unemployed. About 40,000-50,000 people work in various government projects (given on contract). If the government cannot pay them, the livelihood of these people are at risk. This is a very big issue. It is very important to open up markets safely. That is the only solution. People do want to work. Inspector Raj cannot solve coronavirus crisis.
One thing that is coming in the way of opening up of markets and economic recovery is a second wave of infections. How will you deal with this?
One has to be conscious of the risk and take precautions, whether one is going to a market, hotel or any other place. Both the buyer and seller have to take precautions. That is the only way out. If you test 100,000 people today, I am sure 8% would test positive. You cannot help that. You have to be mindful of this risk.(ends)