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Monday, August 03, 2020

FM Sitharaman: AG view on GST compensation sought after talk with states, Council to discuss opinion

The GST Council, chaired by the Union Finance Minister and comprising state counterparts, had in March decided to seek views from the AG, on the legality of market borrowing by the Council to make good the shortfall in the compensation fund.

By: ENS Economic Bureau | New Delhi | Published: August 2, 2020 12:51:08 am
nirmala sitharaman, nirmala sitharaman on state gst, gst collection Finance Minister Nirmala Sitharaman. (File Photo)

The Attorney General’s view on GST compensation was sought after consultation with the states and a meeting of the GST Council would be held now to discuss the legal opinion, Finance Minister Nirmala Sitharaman said on Saturday.

There is no back and forth with the states on compensation. Every such issue — of inadequate cess collection, payment of compensation which the Centre is duty bound to pay, how to pay in the light of inadequate cess, whether it can be done through borrowing, who borrows and who repays — all these issues were discussed in the GST Council meeting earlier, she told reporters. It was decided that legal opinion will have to be taken.

The government has now received the Attorney General’s opinion on GST compensation, and it will now be taken to the GST Council for deliberation. It is now for the Council to make up its mind, the minister said.

The GST Council, chaired by the Union Finance Minister and comprising state counterparts, had in March decided to seek views from the AG, on the legality of market borrowing by the Council to make good the shortfall in the compensation fund.

The Attorney General is learnt to have opined that there is no obligation on the central government to pay the GST compensation shortfall to the states, suggesting that the GST Council can recommend to the Centre to allow the states “to borrow on the strength of the future receipts from the compensation fund” and that the central government will have to take the “final decision in the matter”.

Some states such as Punjab, Kerala, Bihar are not in favour of them being asked to borrow to bridge the revenue gap, that will be then repaid from the compensation cess fund. The states are of the view that the receipts in the compensation fund are expected to be low which won’t be enough to meet revenue shortfall, let alone be used for repaying states for borrowing. They have instead suggested raising tax rates or cess rates, or bringing in more items under the ambit of the 28 per cent slab and the compensation cess. The rest of the revenue gap, as has been suggested by Punjab, can be then bridged through central government doing market borrowing and then compensating the states.

Under the GST (Compensation to States) Act, states have been guaranteed bi-monthly compensation for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

The Centre last week cleared compensation dues for FY20 of Rs 1.65 lakh crore. Now, compensation payments to states are pending since April.

The government will soon come out with a new public sector enterprises policy that will define strategic sectors which will not have more than four PSUs. “We are working on it, the proposal has to go to the Cabinet for clearance,” she said.

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