Accusing the Centre of flouting the provisions of GST Compensation Act by asking the states to borrow in order to meet the shortfall in GST compensation, Telangana chief minister K Chandrasekhar Rao has written to Prime Minister Narendra Modi saying that the central government was abdicating its responsibility of fully compensating the states for revenue losses.

Rao has urged the Prime Minister to reverse the decision of asking the states to meet the shortfall in the compensation through borrowing and proposed that the“Centre can borrow the entire shortfall amount based on the strength of receipts into cess amount. The entire debt servicing ~both principal and interest can be paid from the cess collected for such an extended period beyond 2022, as the GST council may decide.

Batting for cooperative federalism in the strongly worded letter the Telangana chief minister reminded Modi that the Centre has more resources than states and particularly with the introduction of GST, states are left with no major buoyant taxes of their own. Moreover, the option given to the state to borrow in order to meet the shortfall is not in accordance of the act either.

“Linking these options to additional borrowings allowed under the Aatmanirbhar package is only to deny the states the full benefit of the package,” complained Rao.

In addition, since the Centre has already increased the cess on petrol and diesel by Rs 13 per litre which would contribute additional revenue over Rs 2 lakh crore per annum it has preempted the states from increasing the VAT on petroleum products, argued the chief minister. He said states which are at the forefront of fighting with the pandemic requires more resources.

“The Centre is abdicating its responsibility of fully compensating states by taking recourse to legal opinion. The Centre has violated the provisions of the GST Compensation Act by parking the surpluses in the Compensation Fund in its Consolidated Fund instead of parking them in the non lapsable Compensation Fund in the Public Accounts and using the surpluses for meeting its expenditure in the years 2017 to 2018 and 2018 to 2019. Now that there is a deficit, states are being asked to borrow,” wrote Rao choosing not to mince his words on the prickly issue.

The Telangana chief minister signed off by urging the Prime Minister to continue the tradition of taking unanimous decisions in GST Council.