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    GST Council meeting: Centre, states set to clash over compensation payment

    Synopsis

    States are likely to push the Centre to borrow from the market, bring more products under the compensation cess ambit, extend GST compensation cess collection to 10 years from present five years and continue with on-time payment of compensation at 14%, as mandated by the GST Compensation Act.

    Centre is likely to tell states that they should borrow individually from the markets instead of the central government taking the route.
    NEW DELHI: The Goods and Services Tax (GST) Council meeting on Thursday is expected to be a stormy one as states are set to clash with the Centre on the issue of delayed compensation payments. Those ruled by the opposition have opposed the idea that states should themselves borrow from the market if the Centre is unable to pay GST compensation because of revenue constraints.

    The Centre is yet to pay the first instalment of GST compensation to states for the current financial year. These are typically paid out on a bi-monthly basis. It paid about Rs 1.65 lakh crore to states in FY20.

    These states are likely to push the Centre to borrow from the market and suggest that the compensation cess is levied on more products to raise funds.

    Tax collections hit by pandemic
    They may also call for the compensation cess to be extended to 10 years from present five, ending in 2022.

    The Centre is expected to press the states to borrow individually from the markets, relying on the attorney general's opinion. The Centre had told the standing committee on finance in July that it may not be able to pay GST compensation due to states as tax collections took a hit due to the economic slump owing to Covid-19 and the subsequent lockdown.

    Money raised through the cess is paid to the states as compensation for the loss in revenue because of GST.

    "This refusal to compensate the states (for GST payments) is nothing short of betrayal," Congress president Sonia Gandhi said on Wednesday after a meeting with the chief ministers of seven states - Maharashtra, Punjab, West Bengal, Rajasthan, Chhattisgarh, Jharkhand and Puducherry.

    "If there's no money, how will the states work? It is our right to ask for what's due," said Maharashtra chief minister Uddhav Thackeray.

    GST1
    Financial crisis
    Punjab chief minister Amarinder Singh said the state will be in a serious financial crisis due to the lack of funds from GST, which has dropped by over 38% from last year. "This FY we will end at a deficit of Rs 25,000 crore. We've given all the powers of tax collection to the prime minister, we've given up our rights," he said. "Now they're saying they can't pay - we should go to the PM and present this issue."

    West Bengal also demanded compensation dues. Chief minister Mamta Banerjee said the state will need to levy additional taxes to meet the funding shortage as the Centre was yet to pay Rs 4,100 crore as GST compensation.

    The states are not ready to accept lower compensation due to the revenue collapse because of the Covid-19 pandemic and the lockdown.

    Punjab finance minister Manpreet Badal said more items will have to be brought under the ambit of compensation cess to raise more funds. He also advocated a dispute resolution mechanism in case no consensus is reached.

    The meeting is being held solely to discuss compensation payments to states for revenue loss on account of GST implementation. It will consider the attorney general's opinion that the council is empowered to take a call on how states have to be compensated and borrowing from the market to meet the shortfall, if any.

    Bihar deputy chief minister and finance minister Sushil Modi said states can borrow from the market if the Centre stands guarantee.

    "This means that it (state) will get repaid from the compensation cess fund over a much longer duration (tenure of loan)," he said, but also questioned such a mechanism. "How can that (repayment) be done when the fund is not adequate to meet the monthly requirements."

    The middle path
    States could pitch for a mechanism where states may borrow but the Centre would manage the entire borrowing including repayment and interest, an official said.

    Sources said that the GST compensation cess requirement of Rs 26,000 crore per month for FY 21 had arisen due to the unprecedented pandemic, nearly double of Rs 13,775 crore paid each month previous fiscal.

    As per law, the GST Council shall compensate for loss of revenue emanating from implementation of GST, which is different from dual factors of economic slowdown and the pandemic.
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    5 Comments on this Story

    Bhaskar Mukherjee60 days ago
    If GOI had transferred Rs. 7/8 thousands monthly direct to the each non tax payer ac.from March 2020 by more deficit budget most of the financial problems would have been solved, in last 5 months huge & gigantic parchase would had occurred by the poor who become insolvent due to unplanned lockdown for which GOI solely responsible as GOI never discussed with all the state government before lockdown for total planning so GOI will have to bear all the responsibility as only it is responsible for such a low revenue collection & such a low GST it can't be ACT OF GOD...
    Hudaf Shaikh60 days ago
    The GST Council has a responsibility to the nation to honor the terms of the GST agreement - hence, the Council should address any gaps in GST compensation cess collection partly thru' market borrowings and partly extending the cess to additional products / refining rates to boost collections. For this fiscal, in order not to burden the consumer with higher GST, the Council should resort to market borrowings to cover 75% of the shortfall - and further ensure that installments are disbursed on timely basis to all states.
    Filthybimaru Cancer61 days ago
    cancer of bimaru racist filthy dog
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