NEW DELHI: The Centre 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 reporters after the 41st meeting of the GST Council, Finance Minister Nirmala Sitharaman said the economy is facing an extraordinary 'Act of God' situation, which may result in economic contraction.
ALSO READ : OPINION | The GST compensation imbroglio
Here are the key updates:
GST collection has been severely impacted this year, due to COVID19 pandemic. As per GST Compensation Law, states need to be given compensation, says Finance Secretary
Attorney General said that GST Compensation has to be paid for transition period - from July 2017 to June 2022. Revenue has to be protected Compensation gap to be met from cess fund, which in turn has to be funded from levy of cess: Finance Secretary Ajay Bhushan Pandey
The Attorney General's clear opinion was that the compensation gap cannot be met from the Consolidated Fund of India. He suggested that the compensation cess levy can be extended beyond 5 years, to meet the shortfall, says Pandey
West Bengal FM’s proposal to devolve ether cesses to meet shortfall wasn’t raised today, says Finance Minister Nirmala Sitharaman
Compensation gap which has arisen this year (expected to be Rs 2.35 lakh crores), is due to COVID19 as well. The shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crores, said the finance secretary on 41st GST Council Meet
During April - July 2020, total GST compensation to be paid is Rs 1.5 lakh crore, this is so because there was hardly any GST collection in April and May. Annual GST compensation requirement is estimated to be around Rs 3 lakh crore, and cess collection is expected to be around Rs 65,000 crore, leaving us with an annual compensation gap of Rs 2.35 lakh crore
Pandey said: A special window can be provided to the states, in consultation with the RBI, at a reasonable interest rate for borrowing of Rs 97,000 crore. The amount can be repaid after five years (of GST implementation) ending 2022 from cess collection. The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window.
There may be some states which may prefer to get the hard-wired compensation rather than going to the market to borrow more. The option was tailor-made considering that states can take a call depending on the compensation they expect to come
The government is said to give a further relaxation of 0.5 percent in states' borrowing limit under FRBM Act as second leg of Option 1. States can choose to borrow more, beyond the expected compensation itself, since that is the injury caused by COVID-19
Responding to a query, Sitharaman said the GST Council agreed that this is not the appropriate time to talk of increases in tax rates
'Act of God' may result in contraction of economy this fiscal: Finance Minister Nirmala Sitharaman, referring to coronavirus pandemic.
Repayment of loans, including interest payments, will be made through the cess collected from 6th year onwards; in no case will the states be burdened (they will not have to tap into other sources of revenue for loan repayment): Revenue secretary