The Centre’s conciliatory measure to borrow to meet the compensation deficit under the Goods and Services Tax (GST) regime has still not found complete favour with states, with a new front getting opened up where they are insisting on further clarifications and a no-strings attached borrowing mechanism.
States such as Punjab, Chhattisgarh and Kerala have asked for delinking of their compensation share with the conditions such as payment of interest and principal before clearing the arrears along with asking to include the balance compensation deficit amount beyond the proposed borrowing of Rs 1.10 lakh crore also under the ambit of the back-to-back loan mechanism.
Punjab Chief Minister Amarinder Singh is learnt to have written a letter to Union Finance Minister Nirmala Sitharaman stating that there is no clarity on the ratio in which compensation cess after June 2022 will be defrayed between repayment of principal borrowed by Centre (and passed over to states) and the arrears for which borrowings have to be made by states.
“Ideally, cess should be first used to pay arrears and then interest and last of all principal,” the letter stated.
Singh said the suggestions of states such as payment of full compensation and dispute resolution mechanism were ignored and the manner of implementing the eventual solution has “left an impression that going forward states be left to beg for compensation and unable to seek legal remedy”.
He also asked for delinking of the additional 0.5 per cent borrowing space (provided to those states which opt for Option 1) to allow it to all states irrespective of them choosing either option.
Chhattisgarh is also planning to respond to the letter sent by the Centre last week, proposing inclusion of the balance compensation deficit amount under the same back-to-back loan arrangement. Chhattisgarh Commercial Taxes Minister TS Singh Deo said if states are asked to borrow the rest of the compensation deficit beyond Rs 1.1 lakh crore, then the interest liability would fall on states, instead it should get included within the proposed borrowing mechanism.
“Rest of the compensation deficit amount beyond Rs 1.10 lakh crore will get paid eventually from the compensation cess pool. If they say the Centre will be taking the loan and it will be so adjusted, then we have no problem at all. But if they say the states will be given permission to take the loan, but the states will then have to pay interest. Back-to-back loan is the correct procedure, it provides for payment of principal and interest from the cess account. Balance amount should also be brought under this mechanism,” he said, adding that estimates for the compensation deficit for this fiscal should now be made on actual revenues rather than ad-hoc estimates.
Kerala had last week stated that the whole compensation deficit should be borrowed this year and no amount should be deferred, while Jharkhand had rejected the Centre’s proposal.
In a sharp retraction of its earlier position, the Finance Ministry had on Thursday said the Centre would borrow from the market and then act as an intermediary to arrange back-to-back loans to pay the GST compensation shortfall of Rs 1.1 lakh crore to state governments. This arrangement will not reflect in the fiscal deficit of the Centre and will appear as capital receipts for state governments.
The total GST revenue shortfall for the current fiscal was estimated to be Rs 3 lakh crore, of which compensation cess collection was estimated to be Rs 65,000 crore, leaving a compensation deficit of Rs 2.35 lakh crore. Of this Rs 2.35 lakh crore, Rs 1.1 lakh crore shortfall has been estimated on account of GST implementation, while the rest of the amount is being estimated as the impact of the Covid-19 pandemic.
In August, the Centre gave two options to the states — either borrow Rs 97,000 crore from a special window facilitated by the RBI or borrow Rs 2.35 lakh crore from the market.
GST portal develops glitches
Mumbai: The GST portal developed technical glitches on Tuesday, the last day for filing GSTR-3B summary returns for September. This also comes ahead of the October 31 deadline for the annual GST return for 2018-19.
Many taxpayers took to Twitter to complain about the glitches, following which GSTN’s official handle, Infosys_GSTN, responded by stating that they have received intermittent complaints of slowness and timeout of services and that Infosys team was constantly working to ensure “better return filing experience”. —ENS
In October 2019, GST revenues had contracted by 5.29 per cent to Rs 95,380 crore, marking the third instance of a contraction since the July 2017 rollout of the GST regime. 
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