GST Council Meeting: Market borrowing or RBI, states get 7 days to decide


Under the Central Goods and Services Tax Act, states were guaranteed payment for any loss of revenue in the first five years of GST implementation from July 1, 2017. The shortfall is calculated assuming a 14% annual growth in GST collections by states over the base year of 2015-16. In the wake of coronavirus outbreak, the compensation cess collection has plunged in the last few months. The states say the Centre is “morally bound” to compensate and the “refusal is nothing short of a betrayal”.

The GST Council meet is underway.

Here are all the latest updates from 41st GST Council meet

Govt will give further 0.5% relaxation in states’ borrowing limit under FRBM Act

The government will give a further relaxation of 0.5 percent 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.

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

-Gap arising in compensation due to the extraordinary situation: FM

First option has two legs: 1) Centre facilitating states through RBI, in getting loans – for that portion arising out of GST implementation. 2) The gap arising in compensation due to the extraordinary situation and Act of God in the form of COVID-19.

-Option 1 or 2, FM explains

If a state goes for Option 1, it will borrow less, but its compensation entitlement will be protected. So choice is between i) borrowing less & getting cess later, & ii) borrow more & pay for it using cess collected during transition period, said Finance Minster.

-GST shortfall in FY21 at 2.35 lakh crore; of which only 97,000 crore due to implementation of GST, rest due to pandemic: Revenue Secretary.

-FM Nirmala Sitharaman said options discussed for meeting GST shortfall only for current fiscal/ GST Council to look at issue again in April next year, she added.

-During April – July 2020, total GST compensation to be paid is 1.5 lakh crore, this is so because there was hardly any GST collection in April and May: Revenue Secretary

-States ask for 7 days: FM

States have asked us to give them 7 working days to think about the options. These options would be available only during the current year, the situation would be reviewed next year. We may have another GST meet soon: Finance Minister Nirmala Sithaaraman

-GST rates will not be increased, says Finance Minister Nirmala Sitharaman

Compensation gap which has arisen this year (expected to be 2.35 lakh crores), is due to COVID19 as well. The shortfall in compensation due to the implementation of GST has been estimated to be 97,000 crores: Finance Secretary

– Options before states

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.

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

The states have seven days to decide which option they want.

-Compensation gap cannot be met from the Consolidated Fund: AG

The Attorney General’s clear opinion was that the compensation gap cannot be met from the Consolidated Fund of India. He suggested that the compensation cess levy can be extended beyond 5 years, to meet the shortfall

-Revenue has to be protected: Attorney General

Attorney General said that GST Compensation has to be paid for transition period – from July 2017 to June 2022. Revenue has to be protected, says Attorney General.

Total amount of compensation released for 2019-20 is 1.65 lakh crore, whereas cess amount collected was 95,444 crore: Finance Secretary

Central govt released more than 1.65 lakh crore as GST compensation to states for FY 2019-20, including 13,806 crore for March, says Finance Secretary

GST Collection has been severely impacted this year, due to COVID-19. As per GST Compensation Law, states need to be given compensation.

-Centre had in March sought views from the AG

Centre had in March sought views from the Attorney General on the legality of market borrowing to make good the shortfall in the compensation fund

-Options before GST council

The options before the Council for meeting the shortfall could be to rationalise GST rates, cover more items under the compensation cess or increase the cess, or recommend higher borrowing by states to be repaid by the future collection into the compensation fund.

-States ask Centre to make up for the shortfall

At the GST Council meeting on Thursday, West Bengal was joined by Punjab, Kerala and Delhi in asking the Centre to make up for the shortfall, according to PTI.

-GST share of states expected from the Centre is rising: Thackeray

“The GST share of states expected from the Centre is rising. I have been writing letters for expeditious release (of state’s share). But since April we haven’t got any. If we get reply, we don’t get money,” said Thackeray

-Two-wheelers to become cheaper?

Finance Minister Nirmala Sitharaman had signaled at an industry interaction on Monday that the GST slab revision may well be on the cards for the two-wheelers.

Responding to a question about the need for lowering GST rates on two-wheelers, FM Sitharaman assured that “this was indeed a good suggestion as this category is neither a luxury nor a sin good and hence merits a rate revision,” the statement said.

Two-wheelers are currently taxed at 28% GST.

-We need to think if old tax regime was better than GST: Thackeray

Maharashtra chief minister Uddhav Thackeray said the country needs to think if the old tax regime was better than the GST, and also expressed worry about the alleged “concentration” of power.

-Federal structure is bulldozed: Mamata Banerjee

“Our government is yet to get 53,000 crore from the union government. The federal structure is being bulldozed. It is using central agencies against the state government. No one is allowed to talk against the central government,” said West Bengal chief minister Mamata Banerjee on Wednesday.

-Who should borrow?

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

-We should decide whether we have to fight or fear: Thackeray

All the chief ministers, who were present in the meeting, rallied behind Sonia Gandhi and accused the Centre of squeezing their funds in COVID times. Chief ministers Mamata Banerjee, Uddhav Thackeray and Hemant Soren also called for an aggressive opposition strategy to counter the BJP.

“We should decide whether we have to fight or fear,” Thackeray said at the meeting.

-GST was enacted as an example of “cooperative federalism”: Sonia Gandhi

Sonia Gandhi said GST was enacted as an example of “cooperative federalism” and the GST regime came into existence because the states agreed to forego their constitutional powers of taxation in the larger national interest and on the solemn promise of compulsory GST compensation for a period of five years.

-Refusal to compensate states is betrayal by the Modi govt: Sonia Gandhi

Congress president Sonia Gandhi said the government has reportedly told the Parliamentary Standing Committee on Finance that they are not in a position to pay the mandatory GST compensation of 14% for the current year.

“This refusal to compensate the states is nothing short of betrayal by the Modi government and a betrayal of trust of the people of India,” she said at the meeting.

-Will rethink implementation of GST: Uddhav Thackeray

Maharashtra chief minister Uddhav Thackeray and his Puducherry counterpart V Narayanasamy even suggested a rethink on the implementation of Goods and Services Tax (GST), according to news agency PTI.

-GST Council meeting debates on revenue shortfall

At a meeting called by Congress president Sonia Gandhi, the chief ministers of Maharashtra, Jharkhand, Punjab, Rajasthan, Chhattisgarh and Puducherry and West Bengal called for a joint action on the GST issue and decided to collectively petition the prime minister at the earliest.

-GST Council meeting is still in progress, media briefing delayed

As the GST Council meeting is still in progress, the virtual media briefing is delayed. The briefing will commence after the GST Council meeting gets over. Inconvenience is regretted, ministry of finance tweeted.

-Who will compensate for revenue shortfall?

States that do not see at least a 14% annual growth in GST revenue are supposed to be compensated for the shortfall till 2022.

The Centre earlier the compensation cess fund does not have enough funds to due to the fall in GST collection.

-Centre should guarantee state borrowing to meet GST shortfall: Sushil Modi

The central government should stand as a guarantor for any borrowing by states to meet the shortfall in Goods and Service Tax (GST) in case the former finds it difficult to raise debt for the purpose, Bihar’s deputy chief minister Sushil Kumar Modi. Read more.

On Wednesday, Congress interim President Sonia Gandhi held a meeting with chief ministers of Congress-ruled states and their counterparts of West Bengal, Maharashtra and Jharkhand on the issues related to GST dues of states and said the refusal to pay GST compensation to states is nothing short of betrayal on the part of the Narendra Modi government.

-Centre has no statutory obligation: Attorney General

The attorney general had opined that the Centre has no statutory obligation to make up for any shortfall in GST revenues of states from its coffers, according to media reports

-What Attorney General K K Venugopal said

The Centre had in March sought views from Attorney General K K Venugopal on the legality of market borrowing by the GST Council to make up for any shortfall in compensation fund

-The debate continues

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

-Who will borrow?

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.

-Last GST meet: What was decided

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. The aim was to minimise the impact of COVID-19 crisis on micro, small and medium enterprises (MSMEs)

Finance Minister Nirmala Sitharaman chaired 41st meeting of the GST Council via video conferencing in New Delhi. The meeting was started at 11 am on Wednesday.

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