Thiruvananthapuram, Jul 7 (PTI Kerala Chief Minister Pinarayi Vijayan on Thursday shot off a letter to Prime Minister Narendra Modi seeking his intervention to extend the time period of the goods and service tax (GST) compensation for the states for five more years. Referring to the matter raised by the states, including Kerala in the recent meeting of the GST council, the CM said as the five year compensation period has ended, the states are no longer eligible for compensation and "this was a matter of serious concern for us". In the letter, the Chief Minister stated that there is a considerable merit in the request of Kerala and other states in requesting that the provision for compensation to bridge the shortfall in growth of GST revenues may be continued for another five years. "I request your early intervention in this matter of critical importance to the States" finances, which are already in stress as a result of a combination of factors", he said. Vijayan said the reasonable expectation when the tax reform was initiated on July 1, 2017 was that the new tax system and procedures would stabilise in the five year period. But the rates as well as procedures have undergone many changes that the system did not attain the expected stability in the first five-year period of its implementation phase, he said. "As is known to all concerned, a larger share of State taxes were merged in GST vis-a-vis that of the Union. Still, the GST rate was equally apportioned between the States and the union, in spite of recommendations by experts that the ratio of apportionment should be in the ratio 60:40 between States and the Union", the Chief Minister said in the letter. Lamenting that the fixing of rates and their equal apportionment deprived the States of a Revenue Neutral Rate (RNR) in GST, Vijayan said the standard rate of the earlier Value Added Tax (VAT), which was 14.5 per cent fell to nine per cent. He said compensation was a necessary measure to make good the loss consequent to fall in standard rate and the imbalance resulting from equal apportioning of GST rates. The Chief Minister noted that the GST system has taken a much longer time than expected for stabilisation and results are still to emerge. "In the meanwhile, the incidence of the COVID-19 pandemic has caused a substantial slow down in the economy with revenues falling and expenditure obligations rising. Kerala also faced a series of natural calamities in the two years preceding the pandemic," the Chief Minister said. When a nationwide GST subsumed 17 central and state levies from July 1, 2017, it was decided that states will be compensated for any loss of revenue from the new tax for five years. That timeframe ended on June 30.With two years being lost in the pandemic, states have sought an extension of this compensation period by five years.Quoting the 15th Finance Commission report, Vijayan said in our scheme of distribution of fiscal powers, there is a vertical imbalance between the Union and the States and this has been worsening. He said the states like Kerala are also facing added difficulties due to conditionalities imposed on open market borrowings and the revenue deficit grants for the state will also cease with effect from financial year 2024-25. PTI TGB ROH ROH