The 41st meeting of the Goods and Services Tax (GST) Council and representatives of all states via video conferencing on ways to make up for the shortfall in states’ revenues concluded on August 27, 2020.
Background
The Centre says that it has calculated states’ GST revenue gap for this year at about Rs. 3 lakh crores. The cess that is expected to be collected this year is ` 65,000 crores. Therefore, the compensation shortfall is ` 2.35 lakh crores, of which only ` 97,000 crores are due to implementation of GST, while the rest is due to Covid-19. And ` 1.5 lakh crore are due to states for April–July in GST compensation. Attorney General has opined that shortfall in GST collections cannot be met from Consolidated Fund of India, as the Compensation Act did not foresee an act of God, i.e., the pandemic.
Congress and the States, led by non-NDA parties, emphasised that the Centre meets its statutory obligation of covering the deficit. The Centre declined the demand but offered two options to resolve the issue.
Two Options
In this context, the Central government offered two options to states:
- Borrowing less and get cess later (a special window to states, in consultation with RBI, to provide the ` 97,000 crore at a reasonable rate of interest, payable after 5 years from collection of the cess.); and
- Borrow more and pay for it using cess collected during transition period (entire GST compensation gap of ` 2,35,000 crore of this year can be met by the states, in consultation with RBI).
If a state goes for option 1, it will borrow less, but its compensation entitlement will be protected. Option 1 has two legs: i) Centre will facilitate states through RBI in getting loans for the portion arising out of GST implementation, and due to Covid-19. ii) A further relaxation of 0.5 per cent will be given in States’ borrowing limit under FRBM Act.
These options would be available only during current year, situation would be reviewed next year and decisions will be made accordingly.
Courtesy: The Hindu