GST Council to meet today: Stage set for stormy session as compensation dues issue to take centre stage

GST Council to meet today: Stage set for stormy session as compensation dues issue to take centre stage

By Administrator_India

Capital Sands

The Goods and Services Tax (GST) Council is set to meet on October 5 for the first time after the Centre provided the states with two borrowing options to solve the issue of compensation dues.

As many as 21 states opted to borrow Rs 97,000 crore to meet the GST revenue shortfall. Most of these states are ruled by the BJP or parties which have supported it on various issues.

The states and union territories which have intimated their decision to the Centre are 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.

The states of Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal are yet to respond to the GST Council proposal to decide on their options.

As states are hard-pressed for finances to meet their expenditure, some states like Bihar want the issue of pending compensation dues worth over Rs 2 lakh crore to be settled at the earliest.

In a letter to Finance Minister Nirmala Sitharaman, Bihar Deputy Chief Minister Sushil Kumar Modi said that the Centre should sort out the issue as fast as possible and let states that have already submitted their choice to borrow.

“With GST revenue turning negative and the compensation having been delayed, I need not impress upon you the fact that all the states are in urgent need of funds. We will very soon be entering the second half of the current fiscal year and all of us need to do a lot of catching up on the activities planned for the current year and which have been on hold due to lack of sufficient funds…availability of funds, even if the same are in the form of debts, will enable cash-strapped states to once again kick-start the development process which has come to a halt in the face of the ongoing pandemic,” Modi said in the letter.

According to government sources, states which do not submit their borrowing options before the GST Council meet on October 5, 2020, will have to wait till June 2022 to get their compensation dues, subject to the condition that the GST Council extends the cess collection period beyond 2022.

“There may be a relooking at the terms of the two borrowing options, but the options would remain the same. It is unlikely that there would be any change on that,” a senior government official said.

The opposition-ruled states that have not yet accepted either of the two options, reportedly might also press for a dispute resolution mechanism, a model incorporated in the Constitution Amendment Bill of 2011. Since 21 states have already given their choice, a voting on the matter would not have any significance for opposing states.

In the current fiscal, the states are staring at a staggering Rs 2.35 lakh crore GST revenue shortfall. Of this, as per the Centre’s calculation, shortfall of about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is due to the impact of COVID-19 on states’ revenues.

The Centre late last month gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the Reserve Bank of India or Rs 2.35 lakh crore from the market, and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

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