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.
Here are the highlights:
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
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.
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.
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.
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
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.
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
'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 Sitharaman
The Compensation Act did not foresee an act of God, she says.
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.
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.
The 41st meeting of the Goods and Services Tax (GST) Council headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states, held deliberations via video conferencing on ways to make up for the shortfall in states’ revenues.
While 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.