Ahead of the 42nd meeting of the Goods and Services Tax (GST) Council on October 5, 21 states have opted for Option 1 — borrowing of Rs 97,000 crore through an RBI-facilitated special window to meet this year’s compensation deficit of Rs 2.35 lakh crore. This, as per Finance Ministry officials, is a count more than the required number of 20 states and union territories in case the issue goes in for a voting in the GST Council.
While 21 states/union territories, namely Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh have opted for option 1, Opposition-ruled states/union territories such as Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Telangana, and West Bengal, as well as Tamil Nadu are yet to detail their choice to the central government, Finance Ministry officials said.
The officials said that if other states do not submit their options before October 5, the date of the next meeting of the GST Council, then they will have to wait till June 2022 to get their compensation dues subject to the condition that the Council extends the cess collection period beyond 2022.
Around 15 states had submitted their choice for Option 1 by September 15. Manipur, which had earlier opted for Option 2 — which involves borrowing the entire compensation deficit from the market — has now shifted its choice to Option 1.
Several non-BJP ruled states have been at loggerheads with the Centre for asking them to borrow to bridge the compensation deficit. Chief ministers of non-BJP ruled states of West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu have written to the Centre opposing the options which require states to borrow to meet shortfall and have instead asked the Centre to borrow. States have also raised concerns that the distinction of revenue loss for GST implementation and Covid-19 pandemic was unconstitutional.
The Centre has, however, stated that it is unlikely to borrow given the impact it would have on yields of its government securities and also indicated that since the repayment has to be made from compensation cess receipts, it cannot borrow since cess is a resource dedicated to states. Compensation payments to states had started getting delayed since October last as GST revenues began to slow down, a gap which has widened due to the pandemic.
GST compensation payments to states have been pending since April, with the pending amount for April-July estimated at Rs 1.5 lakh crore.
The GST compensation requirement is estimated to be around Rs 3 lakh crore this year, while the cess collection is expected to be around Rs 65,000 crore – an estimated compensation shortfall of Rs 2.35 lakh crore.
In the last GST council meeting on August 27, the Centre had proposed two options to states: to either borrow Rs 97,000 crore (shortfall only 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 shortfall due to Covid-19 pandemic) from the market.
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