THE DEADLOCK over compensation between states and the Centre remained unresolved at the 42nd Goods and Services Tax Council meeting Monday, with 10 non-BJP-ruled states rejecting the two borrowing options floated by the Centre. The Council, however, approved extension of the levy of compensation cess on luxury and sin goods beyond the five-year transition period ending June 2022.
During the meeting, Opposition-ruled states reiterated that the Centre needed to borrow money, instead of states, to bridge the compensation deficit of Rs 2.35 lakh crore this fiscal — and not make any distinction in revenue shortfall on account of GST implementation and the pandemic, The Indian Express has learnt.
A call for voting, too, was learnt to have been proposed by Kerala, Jharkhand, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, West Bengal and Chhattisgarh towards the end of the eight-hour meeting. The Centre has recalculated the borrowing amount for Option 1 to Rs 1.10 lakh crore, changing the assumption to 7 per cent revenue growth, as against Rs 97,000 crore earlier based on assumption of 10 per cent revenue growth.
Voting is likely to be proposed again in the next meeting slated for October 12, officials said. At least 20 states have already opted for Option 1, tilting the numbers in the Centre’s favour.
“To be fair to the Council, it did take a decision that cess will have to be extended beyond the five years…after that, there was this question of some states not wanting Option 1, and states wanting Option 3, which they have written to the Prime Minister about and which was forwarded to us for a reply,” Finance Minister Nirmala Sitharaman said.
“So the question was, it could be that 20 states have chosen Option 1, some of us have not chosen any…among those who have not chosen any, the argument was that it should be the Centre which borrows. On this there was a lot of discussion, it was felt that you cannot decide on the basis of the 20 states who have written to you, we need to talk further. And I was also gently reminded that I can’t take anybody for granted. I don’t take anybody for granted… I have always been open for more and more talk,” she said.
“10 states demand that full compensation should be paid to the states during the current year as per clauses in the law and Centre should borrow. Decision was postponed to the next meeting…,” Kerala’s Finance Minister Thomas Isaac posted on Twitter.
Bihar Deputy Chief Minister Sushil Kumar Modi told The Indian Express that there was consensus among more than 20 states in favour of Option 1. “We wish to avoid division, so another week was given. If they don’t agree, then voting can happen. Those states who have given their options, they should not suffer…It’s been six months now, we need the money. States should not hijack the agenda,” he said.
In the previous meeting on August 27, the Centre had proposed two options to states: borrow Rs 97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to Covid) from the market.
Sitharaman, meanwhile, said cess collection this year so far, amounting to Rs 20,000 crore, would be disbursed to states Monday. The Council also decided to disburse Rs 24,000 crore to states by next week as the share from Integrated GST (IGST) from the first year of implementation.
GST compensation has been pending for this financial year, amounting to Rs 1.5 lakh crore till July. Of this, the states with the biggest chunk of pending payments are: Maharashtra (Rs 22,485 crore), Karnataka (Rs 13,763 crore), Uttar Pradesh (Rs 11,742 crore), Gujarat (Rs 11,563 crore) and Tamil Nadu (Rs 11,269 crore).
Among other decisions, the Council announced relaxation in compliance measures for smaller taxpayers with annual turnover of less than Rs 5 crore who are required to file GST returns only on a quarterly basis with monthly tax payments from January 1, 2021. They will, “for the first two months of the quarter, have an option to pay 35 per cent of the net cash tax liability of the last quarter using an auto-generated challan,” a Finance Ministry statement said.
The Council approved the revised requirement of declaring HSN (Harmonised System of Nomenclature) Code for goods in invoices and in sales return Form GSTR-1 with effect from April 1, 2021. Taxpayers with a turnover of over Rs 5 crore will have to quote the six-digit HSN, while those up to Rs 5 crore will have to quote up to four digits for B2B supplies of goods and services.
The Council also decided to exempt domestic launching of satellites, particularly by start-ups, using services by ISRO, Antrix Corporation Ltd and NSIL, the statement said.
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