Manas Dasgupta
NEW DELHI, August 27: The centre has rejected the demands of the non-NDA states for full compensation of the shortfall from the GST revenue. While the Congress and the states ruled by other non-BJP parties pushed for the Centre meeting its “statutory obligation” of covering the deficit, the Union government cited a legal opinion to say it had no such obligation if there was a shortfall in tax collections.
The Centre as well as BJP-JD(U)-ruled Bihar were of the opinion that the states should borrow to make up for the shortfall in the tax revenues that have been compounded by the COVID-19 crisis. The Congress interim president Sonia Gandhi and several other non-BJP chief ministers at a virtual meeting on Wednesday had called it a “betrayal” by the Narendra Modi government for its refusal to fully compensate the shortfall arising out of COVID crisis.
The Centre instead on Thursday placed before the GST Council two options for borrowing by states to meet the shortfall in GST revenues, pegged at Rs 2.35 lakh crore in the current fiscal.
Briefing media persons after the 41st meeting of the GST Council on Thursday, the union finance minister Nirmala Sitharaman conceded that the economy was facing an extraordinary “Act of God” situation that might result in an economic contraction.
As per the Centre’s calculation as the details placed before the council, the compensation requirement by the states in the current fiscal would be Rs 3 lakh crores, of which Rs 65,000 crore was expected to be met from the cess levied in the GST regime leaving a total shortfall at about Rs 2.35 lakh crores.
According to the union revenue secretary Ajay Bhushan Pandey, of the total about Rs 97,000 crores would be on account of GST shortfall, while the rest would be due to the impact of coronavirus. “The compensation gap which has arisen this year (expected to be Rs 2.35 lakh crore), is due to coronavirus as well. The shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crore,” he said.
Pandey said a special window could be provided to the states, in consultation with the RBI, at a reasonable interest rate for borrowing of Rs 97,000 crore. The amount could be repaid after five years (of GST implementation) ending 2022 from cess collection.
The second option before the states would be to borrow the entire Rs 2.35 lakh crore shortfall under the special window. “States have been given seven days’ time to think over the proposal,” Pandey said.
“During April-July 2020, the total GST compensation to be paid to states will be Rs 1.5 lakh crore, this is so because there was hardly any GST Collection in April and May,” said Pandey.
The 41st meeting of the Goods and Services Tax (GST) Council headed by Union Finance Minister and comprising representatives of all states, held deliberations via video conferencing on ways to make up for the shortfall in states’ revenues.
