HD Kumaraswamy said it was time to devise a mechanism to overcome erosion of the state's tax base

Karnataka on Saturday sought extension of the Compensation Act beyond 2022 to bridge the revenue gap likely to arise out of a shortfall in the collection of the Goods and Services Tax (GST).

"The Compensation Act should be extended beyond 2022 in case the revenue gap is not bridged by then to compensate our state, as envisaged in the Act," Chief Minister H.D. Kumaraswamy said at the fifth meeting of the governing council of Niti Aayog in New Delhi.

As the GST regime has taken over the state's resource mobilisation efforts, the chief Minister said revenue shortfall would adversely impact developmental and other infrastructural projects across the state as well as the committed expenditure of the state government.

The meeting was chaired by Prime Minister Narendra Modi, as Chairman of Niti Aayog, attended by its members and chief ministers from across the country.

Addressing the council, the Chief Minister said though trends showed that the State GST (SGST) component of the GST has been on the rise, the revenue gap was being bridged by the assured compensation till 2022.

"As our state will have limited scope to mobilise additional revenue beyond 2022, there would be a steep fall in our revenues by the end of fiscal 2022-23, as compared to protected revenue till fiscal 2021-22 due to the constitutionally guaranteed compensation," Mr Kumaraswamy pointed out.

Noting that the southern state would face a financial crunch after 2022 once the compensation ended, Mr Kumaraswamy said it was time to devise a mechanism to overcome erosion of the state's tax base since the GST was being implemented with effect from July 1, 2017.

"The state's revenues under the GST have not risen to our expectations despite our best efforts to bridge the gap and overcome the challenges faced in implementing it, he said.

The state has taken steps to track non-filers and bill traders, data-analytic led enforcement and vigilance to detect suppression.

"Capacity building programmes to tax officers, awareness to stakeholders and other measures have, however, had a positive impact in enhancement of revenue when compared to the previous fiscal," added the Chief Minister.