‘Tax sharing norms may be eased’

Finance Commission mulling relaxations in GST compensation, tax devolution to states

Published: 19th September 2020 09:46 AM  |   Last Updated: 19th September 2020 09:46 AM   |  A+A-

GST Council

As far as the GST compensation issue goes, the Centre has told states to up market borrowings. (Express Illustrations)

Express News Service

NEW DELHI: With no clear revenue projections or economy recovery in sight, the Fifteenth Finance Commission is considering relaxing norms on compensation to states until 2022. “The finance commission had a series of meetings with the finance ministry, economists and experts. Most of them are of the view that the Finance Commission should take a lenient view of the terms for devolution of tax share and compensation, especially in the light of Covid-19. 

Also, it is not yet clear when revenue flow and the economy will be back to pre Covid times,” a senior member of the commission who is aware of the progress of the report told TNIE. The source added that the commission might deviate from the earlier share of devolution of GST to states. “At least for the first year FY 2021-22, there will be some flexibility for the Centre in the manner in which they will compensate states, even if it may require deviation from the earlier path as it is an extra ordinary situation,” the source pointed out.

The Financial Commission is likely to submit its report on October 31 to the government. However, the immediate challenge is that the commission has not yet got a clear revenue projection from the department of revenue, something that it has sought. Given the context of the pandemic, there is also difficulty in projecting when the economy will open up completely.

The government is yet to assess the impact of the pandemic on the overall economy since cases are still increasing, and this is only adding to the challenges facing the commission. “This is an unprecedented year and its uniqueness may pose problems getting selected as the base year. There have been various suggestions. One is to look to the first six months of 2021-22. 

But since we know very little about what will happen next year, we have to go by nominal projections. Another option is to look at the past three years, and make some assumptions on that,” the commission’s chairman NK Singh had said earlier this month after meeting with its economic advisory council.

Rs 3 lakh cr
is the estimated shortfall in GST compensation which has to be paid to states this fiscal, since the estimated collection of compensation cess is only Rs 65,000 crore for the year

As far as the GST compensation issue goes, the Centre has told states to up market borrowings
It has also provided them with borrowing options, but several states have opposed the move


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