Is the Government Manipulating its Accounts?
In a recent turn of events, the Central Govt. has been accused of window-dressing its books of accounts (worth Rs. 47K crores). Read on to know how!
Changing status-quo wasn't easy. Convincing all the States to adopt GST wasn't easy.
Yet, it happened.
On 1 July 2017, approx. 17 different types of taxes were absorbed in GST and the dream of One Nation One Tax was brought to life.
But how?
To answer this question, let's look at why the States were skeptical about the change in the first place.
In the earlier system, manufacturing and business friendly States were earning more tax revenues than the States that had less of those.
Sounds Fair. Efforts were rewarded.
However, under GST, the system changed from an origin based tax to consumption based tax. Simply put, the States consuming more were going to profit more than the manufacturing States.
(Sounds brutal, and so the States thought. But to bring in the simplicity and seamlessness of GST, it was a necessary evil).
Now, to rope in all the States, the Central Government made an offer they could not refuse. (Secretly hoping that the States would see the numerous benefits of GST and would soon get accustomed)
It would compensate the States for any shortfall in revenue due to the implementation of GST.
It was estimated that every State’s tax revenue (as per the old scheme) would go up by 14% y-o-y. If they suffered any shortfall in this, they would be compensated in full for a period of 5 years.
But from where?
The pockets of the Union Government?
Of course not.
A GST compensation fund was created where taxes collected from us (the consumer) under the head “Compensation Cess” were deposited. This, the Union Government said, would be used to pay for the shortfall.
All was good and States were getting compensated (though not timely, but yes, at least the money was flowing).
Until... roaring came the pandemic, wreaking havoc to the Union Government’s finances.
Super low economic activity in the country dried off revenue sources for both, the Union and the States Governments.
With no cash to spare, Finance Minister Nirmala Sitharaman stated that the pandemic was an “Act of God” and denied the States their fair share of compensation.
But isn’t that wrong? Turning back on your promise? Umm, maybe not - if you are a politician.
The Union Government smartly used the legal wordings of the Act to excuse itself from paying the compensation and gave certain options to the States to meet the shortfall.
And then they did something even more sinister, more gruesome.
An alleged GST Compensation scam of Rs. 47,000 crores by the Union Government on the State Governments.
Yes, you heard it right.
In a recent turn of events, the Union Government has come under the scrutiny of its Auditor, the Comptroller and Auditor General (CAG). CAG reported that the books of the Union Government were cooked (wrongly represented) for the FY 2018-19.
The Central Government in violation of the GST Compensation Act 2017, wrongly retained revenues to be transferred to the GST Compensation Cess to the amount of Rs. 47,272 crores.
But why should that affect anyone? The funds of the Union Government are with the Union Government only?
No. It is not that simple.
When the Union Government collects cess, it is transferred to the Consolidated Fund of India (CFI). From the CFI, the collected amount is transferred to other Specific Reserve Funds. The amount in every such special purpose fund has to be utilized for the purpose they were created.
One such fund is the GST Compensation Fund. And the amount in this fund rightfully belongs to the State Governments and not the Union. (Well unless there is a surplus in it at the end of 5 years, in which case 50% of the surplus will be transferred to CFI and the balance will be distributed among the States)
But, the Union Government, in this case, retained some amount of cess in the CFI and did not transfer it to the GST Compensation Fund. From here, the Government had full access to use it anywhere but to pay the States for their shortfall.
Crazy, right? Well, this doesn’t end here.
With these excess collected funds in the CFI, the Union Government was able to show a rosy picture of it's revenue collection and financial position.
The perfect gameplay.
A win for the Union Government in all aspects.
After the report came out, the Government has made its stand clear and refuted all the claims made by CAG. According to them, temporary retention in the CFI for reconciliation is not a misappropriation. But isn’t that manipulation of books of accounts to show a better self?
Well, let's give them the benefit of doubt. After all, it was just a one-off case, right?
Hahaa! Surprise, surprise.
According to CAG, this is neither the only case nor the only time when the Government has done such a thing. According to the report by CAG, in FY 2018-19, the Government retained more than Rs. 1,10,000 crores from the CFI out of the Rs. 2,74,000 crores collected from the different cess'.
Moreover, another Rs 1,24,000 crores collected by the Union Government for a decade from cess on crude oil, was not transferred to the designated reserve fund.These practices by the Union Government, to window-dress and show a better set of accounts is against the spirit of transparency and good governance.
When the Government itself is manipulating its books of accounts, what kind of example are they setting for our corporate citizens?
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By: Pranav Agarwal