Center is hard-pressed to pay GST fees to states amid coronavirus crisis
New Delhi:
Thirteen states have given their borrowing options proposed by the goods and services tax council to cover the deficit in the center’s compensation amid the coronavirus pandemic, sources from the Finance Ministry said. Six more states, Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh, will give their option in one or two days.
The 12 states that chose to borrow funds under “Option 1” are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh, Uttarakhand and Odisha. Only Manipur has opted for “Option 2”.
The first option allows states to borrow the tax collection shortfall due to the change to GST, estimated at Rs 97,000 crore, by issuing debt under a special window coordinated by the Ministry of Finance. The second option allows states to borrow the entire compensation deficit of Rs 2.35 lakh crore, including the deficit due to the coronavirus crisis, by issuing market debt.
Some states have presented their views to the chair of the GST Council and have not yet decided on the options. The two options were decided by the GST Council at a meeting on August 27.
“The council meeting took place in the context of the opinion of the Attorney General of India on the issue of termination of compensation, where he has opined that the center has no obligation under the GST laws to compensate for the loss of income. The Prosecutor Generally, it is the GST Council that has to find ways to cover the compensation deficit and not the central government. Therefore, after the meeting, the GST Council offered two options to the states to borrow “, the sources have said.
However, it was reported that the lead counsel for the center, prior to the GST Council meeting, had asked the government to compensate the states for the loss of GST revenue amid the coronavirus crisis.
Congress had called it a “sovereign default” and backtracking on constitutional guarantees that had been the reason the states had joined the GST plan.
“At the recent GST Council meeting it was discussed that in the current economic scenario it may not be possible to increase tax rates or rationalize rates to cover the offsetting deficit. However, loans could be an option for address this challenge. Therefore, the central government is committed to helping the states to the maximum to cover the deficit by compensation through loans, “said the sources.
The center is hard-pressed to pay GST fees to states that haven’t earned much this year due to the months of lockdown required by the COVID-19 crisis. Punjab, for example, has said it may experience a revenue shortfall of Rs 25 billion this year.
GST collections, including compensation payments to states, fell short of targets even before the coronavirus pandemic, making it difficult for the center to compensate states.
.
