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    41st GST Council meeting: Differences emerge between Centre, states over compensation deficit

    Synopsis

    A source privy to the developments said that the ongoing meeting may not be adequate to address the issue. States including Punjab and Kerala have proposed that the Central Government should borrow and provide to states, but Centre and Bihar are asking states to borrow.

    AP
    Nirmala Sitharaman
    Differences of opinion have emerged between Centre and states at the ongoing Goods and Services Tax (GST) Council meeting, indicating that more meetings may be called to resolve the issue of compensation deficit for states.

    A source privy to the developments said that the ongoing meeting may not be adequate to address the issue.

    States including Punjab and Kerala have proposed that the Central Government should borrow and provide to states, but Centre and Bihar are asking states to borrow.

    Other options by other states have been put on the table for bridging the compensation deficit, such as raising cess on tobacco, increasing the tenure of payment to states beyond 2022.

    States have backed a proposal that the Centre should borrow from the market and provide to states as it will get a lower rate and easier access to markets.

    Centre has also tabled the opinion of the Attorney General that Centre is not liable to pay and that the decision lies with GST Council.

    The Centre has said that the revenue loss in the current financial year is not because of GST implementation and that the Covid-19 pandemic be treated as an exception.

    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 Covid 19 pandemic that have impacted the tax collections across the country.

    In the first four months of the fiscal, compensation cess collections have been 33% less than last year, at Rs 21,940 crore.

    However, sources say that the states may agree with the Centre's proposal for each state to borrow as long as the Centre provides the guarantee, along with the payment mechanism and interest.

    More so since using Consolidated Fund of India for paying compensation to states was turned down by the Parliament, but the market borrowing option was kept open.

    The GST compensation cess requirement stands at 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.

    The GST (Compensation to States) Act mandates that the Centre compensates states for a five-year transition period for any potential loss in revenues due to implementation of the tax, which was rolled out on July 1, 2017.

    The compensation calculation takes FY16 as the base year with a compounded annual growth rate (CAGR) of 14%.

    They are paid from the GST Compensation Fund, to which the cess collections go. The Act, however, is silent how any shortfall will be tackled in case the fund falls short.
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    5 Comments on this Story

    Sanjay Chowdhury55 days ago
    A perfect loan Government. 22 lac crore Covid package- take loan from bank. GST compensation - take loan. The lone example of loan government.
    Omprakash Jalan55 days ago
    Suggestions by FM not expected. This type of suggestion even peon working in department cane give
    Sanjay Pandey55 days ago
    Better we hand over the country to the other Sovereign nations,to manage,like East India Company.It would be the end of all conflicts,North South,East West, Reservation non reservation,LoveJihad,Mandir Masjid,Cow and Sow etc.Its a mess of a democracy,which only Govt like China can handle.It would be the end of all headache
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