Its a ‘Centre Vs States’ situation on GST compensation : 41st GST Council

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Govt will give further 0.5% relaxation in states’ borrowing limit under FRBM Act: FM Sitharaman
The 41st GST Council will be chaired by Finance Minister Nirmala Sitharaman. The meeting began at 11 am, where the Council is expected to discuss issues such as compensation to states and GST rates revision. The GST Council might focus on issues such as compensation to states, revenue shortfall. The Centre had in March sought Attorney General K K Venugopal’s inputs on the legality of market borrowing by the GST Council to make up for any shortfall in the compensation fund.

GST shortfall pegged at Rs 2.35 lakh crore in the current fiscal

A crucial meeting of the GST Council on compensating states for revenue shortfall concluded on Thursday with the states ruled by non-NDA parties opposing the Centre’s move to ask states to borrow to meet the deficit.

States behaved like statesmen, but…

In today’s meeting, I am very grateful to the states that there was no attempt to politicise the issue. There were worries expressed, which were addressed in the sense that we are coming up with an option. This would not have been possible if the states did not behave like statesmen, say Nirmala Sitharaman.

She quickly adds: “But outside the meeting, there is politicisation.”

Repayment of loans, including interest payments, will be made through the cess collected from sixth year onwards. In no case will the States be burdened, says Revenue Secretary

5.15 PM

The GST Council has agreed that this is not the appropriate time to talk of increases in tax rates, says Nirmala Sitharaman to a question on revising tax slabs.

5.10 PM

If a State goes for Option 1, it will borrow less, but its compensation entitlement will be protected, says Nirmala Sitharaman.

So choice is between borrowing less & getting cess later and borrow more & pay for it using cess collected during transition period, she explains.

5.05 PM

First option has two legs, explains the Finance Minister.

Centre will facilitate States through RBI in getting loans – for that portion arising out of GST implementation.

Secondly, the gap arising in compensation due to the extraordinary situation and Act of God in the form of COVID-19.

There may be some states which may prefer to get the hard-wired compensation rather than going to the market to borrow more. The option was tailor-made considering that states can take a call depending on the compensation they expect to come, she says.

The Govt. will give a further relaxation of 0.5% in states’ borrowing limit under FRBM Act as second leg of Option 1. States can choose to borrow more, beyond the expected compensation itself, since that is the injury caused by COVID-19, she explains.

5.00 PM
QUOTE   : ‘Act of God’ may result in contraction of economy this fiscal.
Finance minister Nirmala Sitharaman, referring to coronavirus pandemic

Two options were presented before the GST council.

1. To provide a special window to states, in consultation with RBI, to provide the ₹97,000 crore at a reasonable rate of interest. This money can then be repaid after 5 years from collection of cess.

2. Entire GST compensation gap of ₹2,35,000 crore of this year can be met by the states, in consultation with RBI.

States have requested a 7-day window to think over and get back to Finance Ministry.

These options would be available only during current year, situation would be reviewed next year and decision made on what is best for the country, says Revenue Secretary

4.55 PM

GST on two-wheelers

Two-wheelers may merit to go to the GST council for a consideration, Finance Minister Nirmala Sitharaman tells when asked about GST cut for two-wheelers. She had earlier remarked two-wheelers are neither luxury nor sin goods.

4.50 PM

GST revenue gap

The Centre has calculated that the States’ GST revenue gap for this year will be about Rs. 3 lakh crore. The cess that is expected to be collected this year is Rs. 65,000 crore. This means that the compensation shortfall will be Rs. 2.35 lakh crore, says Revenue Secretary

4.45 PM

‘Compensation Act did not foresee an act of God’

We are facing an extraordinary situation this year due to COVID. This is an act of God which might even result in a contraction of the economy, says Finance Minister Nirmala SitharamanThe Compensation Act did not foresee an act of God, she says.

4.40 PM

GST shortfall

GST shortfall in FY21 stands at Rs 2.35 lakh crore, of which only Rs 97,000 crore was due to implementation of GST, while the rest was due to the pandemic, says Revenue Secretary. Rs 1.5 lakh crore due to states for April-July in GST compensation, says Revenue Secretary.

4.35 PM

GST collection severely impacted due to pandemic, says Revenue Secretary after GST Council meeting.

Attorney General has opined that shortfall in GST collections cannot be met from Consolidated Fund of India, he says.

4.30 PM

“Central govt released more than Rs 1.65 lakh crore as GST compensation to states for FY 2019-20, including Rs 13,806 crore for March. Total amount of compensation released for 2019-20 is Rs 1.65 lakh crore, whereas cess amount collected was Rs 95,444 crore.”

We are not happy with outcome: Congress after GST Council meeting

Congress and the states ruled by non-NDA parties pushed for the Centre meeting its statutory obligation of covering the deficit, the Union government cited a legal opinion to say it had no such obligation if there was a shortfall in tax collections.

  • The Congress Thursday said it was “dissatisfied” with the outcome of the GST Council meeting and accused the Centre of adopting a majoritarian approach and thrusting “solutions” on states.
  • The finance ministers of Congress-ruled states are not happy with the outcome of GST Council meeting as decisions were thrust upon them by the Centre, Punjab’s FM Manpreet Badal said at a virtual press conference after the GST Council meeting.
  • “We are not happy at the outcome. But, we have no choice,” he said

Who should borrow, Centre or states?

Punjab finance minister Manpreet Singh Badal stressed on Centre’s commitment to compensate states for revenue shortfall. Bihar deputy chief minister Sushil kumar Modi indicated states can borrow; while Chattisgarh minister T S Singh Deo said that Centre should borrow.

13:08 (IST), AUG 27

States, cutting across party lines, seek higher borrowing as compensation for revenue shortfall

11:24 (IST), AUG 27

09:34 (IST), AUG 27
States vs Centre

States that do not see at least a 14% annual growth in GST revenue are supposed to be compensated for the shortfall till 2022. But the compensation cess fund created for the purpose doesn’t have funds due to the fall in GST collection. The Centre says it is not legally bound to pay states and it is the GST Council that must decide on making good the shortfall.

09:34 (IST), AUG 27
 ‘Refusal to compensate the states is nothing short of a betrayal’

States say the Centre is “morally bound” to do so and the “refusal to compensate the states is nothing short of a betrayal”. During a meeting with chief ministers of states where Congress is in office or in coalition with allies, as also West Bengal, Congress president Sonia Gandhi accused the Centre of “betrayal” and said it was crucial that compensation be paid on time, in line with the legal provisions. “I know this is not happening. Dues have accumulated. The finances of all states have been badly affected,” she said.

Options before GST Council

The options before the GST Council: increase the compensation cess or its ambit to include more goods and services, or rationalise the rates, or borrow from the market. While states have been reluctant to rework the tax slabs or raise the levy on goods and services, there’s a dispute over borrowing too. The Centre wants states to borrow, and pay based on future receipts, while states want the Council to borrow and pass it on to them.

09:34 (IST), AUG 27
How states spend

Collectively, states spend more than the Centre, accounting for about 60% of the total government spending. At a time when the economy depends almost entirely on state expenditure, state finances are the key.

09:34 (IST), AUG 27
What was decided in the last GST meet

In the last meeting held on June 12, the GST Council decided to waive off fees for late filing returns between July 2017 to January this year in a bid to minimise the impact of Covid-19 crisis on micro, small and medium enterprises (MSMEs).

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