Amid a clamour by opposition-ruled states for the promised compensation due to loss of revenue arising from the implementation of GST, Finance Minister Nirmala Sitharaman presented two options under which they could borrow from the market to make up for the estimated deficit of Rs 2.35 lakh crore this fiscal.
Following a five-hour long meeting of the GST Council, Sitharaman said there was no proposal to raise tax rates to make up for the revenue shortfall that has been compounded due to the Covid-19 pandemic. “This year we are facing an extraordinary situation… we are facing an act of God which might even result in a contraction of the economy,” she said.
Here are the highlights of GST Council meeting:
#1) The GST shortfall in FY21 is expected to be around Rs 2.35 lakh crore. This shortfall is due to Covid-19 as well. Shortfall in compensation due to implementation of GST has been estimated to be Rs 97,000 crore.
#2) States given two options for GST compensation. The first option is providing a special window to states, in consultation with RBI, for borrowing Rs 97,000 crore at a reasonable interest rate. The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window.
#3) States given seven working days to decide which option they want. Sitharaman said “the interest from borrowing would be repaid from the cess collected in the years beyond the first five years of GST implementation”.
#4) “These options will be available only during current year. The situation will be reviewed next year in April and decision made on what is best for the country,” Sitharaman said.
#5) Sitharaman said both the options hinged upon the fact that borrowing would be done by the states.
“We very clearly said in both the options… that we shall facilitate talking to the Reserve Bank and getting it at a G-Sec proportionate number of years linked rate for all the states so that each state does not have to go running for the loan and face different situations and in the process the bond yields (turn) higher. So, we said we will facilitate it, but the borrowing can be done in the name of the states and all states roughly can get the same rate of interest,” Sitharaman said.
#6) The total GST compensation to be paid to states for April-July period is Rs 1.5 lakh crore. “This is so because there was hardly any GST Collection in April and May,” said Revenue secretary Ajay Bhushan Pandey.
#7) The Centre has released over Rs 1.65 lakh crore in 2019-20 as GST compensation. The amount of cess collected during 2019-20 was Rs 95,444 crore. The balance of about Rs 70,000 crore was paid from the excess cess collected in 2017-18 and 2018-19. The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.
#8) Attorney General KK Venugopal has opined that the compensation gap cannot be met from the Consolidated Fund of India and suggested that the compensation cess levy could be extended beyond 5 years to meet the shortfall.
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