Demonetization bought new difficulties for GST Implementation: Amit Mitra

NEW DELHI: Amit Mitra emphasized that instead of GST roll out, states should get compensation from the Center as demonetization have impacted the state level tax collections in a negative manner.

During the course of the previous meetings between several state finance ministers on GST, Mitra said there was consensus that ~55,000 crore would be needed to compensate the states for the revenue loss arising from adopting the GST regime. However, states, which could post a 14% growth, were not to be compensated from the fund.

But with demonetization, state taxes collected would sharply decline, Mitra said, adding, “That would mean the compensation to the states, who could have made 14% growth in revenue, is going to fall below the 14%, which means, by constitutional amendment, they will also have to be compensated.” The West Bengal finance minister said ~1 lakh crore would most likely be needed to compensate the states.

Since the compensatory fund consists of taxes from sales of luxury cars, aerated drinks, tobacco and other commodities, from where tax collection is likely to decline in wake of demonetisation, the fund itself will come under stress, he explained.

“While the compensation sources are falling, your need for compensation is steeply rising,” he said, questioning if the country’s populace was ready to take another “destabilisation of the economy by another hit called GST”.

Mitra took a swipe at Urjit Patel, saying, the Reserve Bank of India (RBI) governor seemed to have “lost his way”.which will result in disruption of an enormous scale, he said. “The whole tax architecture will have to change, which is a huge challenge in the form of destabilisation. Can we not move GST a little bit on so that when the economy stabilises (and) people come back to normal living conditions, you bring in another disruption,” he asked.