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Tuesday, June 15, 2021

GST compensation to states: Centre says won’t borrow, another council meet ends without consensus

Opposition-ruled states have been locked in a battle with the Centre, opposing borrowing to be done by states, and have instead demanded that the Centre borrow to meet the compensation shortfall.

By: Express Web Desk | New Delhi |
Updated: October 12, 2020 10:59:38 pm
Finance Minister Nirmala Sitharaman (PTI/file)

The GST Council meeting held Monday to discuss the compensation of states for the shortfall in GST collections again ended without reaching any consensus.

The panel, which is the highest decision-making body on indirect taxes, for the second time in a week failed to arrive at an agreement on the Centre’s proposal of states borrowing against future GST collections to make up for the shortfall, news agency PTI reported.  This was the third meeting in a row held to discuss compensation shortfall.

Finance Minister Nirmala Sitharaman, who heads the Council, said the Centre cannot borrow and pay states for the shortfall as it would lead to rise in bond yields, resulting in rise in borrowing costs for the government and the private sector.

However, this would not be the case if states borrowed against future GST receipts, she said, adding 21 states had agreed to borrow as suggested by the Centre. However, other states insisted on a decision to be taken by consensus, she said.

“We were not able to arrive at a consensus,” Sitharaman was quoted as saying by the news agency.

Opposition-ruled states have been locked in a battle with the Centre, opposing borrowing to be done by states to bridge the compensation deficit, and have instead demanded that the Centre should borrow to meet the compensation shortfall.

Opinion | For the future of Centre-state relations, Centre should borrow to fund states’ GST loss

The Centre had in August given two options to the states — to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

As reported earlier by The Indian Express, non-BJP ruled states are not in favour of pushing for a vote on the compensation matter but instead emphasise on setting up of the dispute resolution mechanism, which is already outlined in The Constitution (One Hundred and First Amendment), 2016, but was never put into motion ever since the July 2017 rollout of the indirect tax regime.

Earlier on October 5, during the 42nd GST Council meeting, as many as 10 non-BJP-ruled states rejected the two borrowing options floated by the Centre, while reiterating 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.

(Inputs from PTI)

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