While 21 states, mostly governed by Bjp or the parties that have supported him on issues, had opted until mid-September to borrow Rs 97,000 crore to meet the GST income deficit in current opposition-led fiscal states such as West Bengal, Punjab and Kerala, they have not yet accepted the borrowing option offered by the Center.
The sources said at the 42nd Council meeting on October 5, the opposition-ruled states would object to the Center’s borrowing options and demand an alternative mechanism to finance the GST’s compensation deficit.
They feel that the constitutional responsibility to compensate the states rests with the union government.
In the current prosecutor, the states are looking at a staggering Rs 2.35 lakh crore Tax on goods and services (GST) income deficit.
Of this, according to the Center’s calculation, approximately Rs 97,000 crore is due to the implementation of the GST and the remainder Rs 1.38 lakh crore is the impact of Covid-19 on the revenue of the states.
In August, the Center gave states two options to borrow Rs 97,000 crore from a special window provided by the RBI or Rs 2.35 lakh crore from the market and also proposed to extend the compensation tax applied to luxury goods, demerit and sin more beyond 2022 to repay the loan.
States not governed by the BJP disagree with the Center on the issue of deficit financing.
The chief ministers of six states not governed by the BJP – West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu – have written to the Center opposing options requiring states to borrow to cover the deficit.
While these states want the Center to borrow to cover the shortfall, the Center has argued that the proceeds from the GST offset tax go to the states and the Center cannot borrow with the guarantee of the tax that does not belong to it.
Under the GST structure, taxes are collected below 5, 12, 18 and 28 percent of slabs. In addition to the higher tax slab, a luxury, sin and demerit property tax is levied and the proceeds from these are used to compensate the states for any loss of income.
The Attorney General of India, KK Venugopal, had given his legal opinion on the issue of termination of compensation where he opined that the Center has no obligation under the GST laws to compensate for the loss of income.
He had opined that the GST Council it has to find ways to cover any revenue shortfalls arising from the implementation of GST.
Payment of GST compensation to states became a problem after revenue from the imposition of the fee started to decline since August 2019. The Center had to dive into the amount of the excess fee collected during 2017- 18 and 2018-19.
The Center had released more than 1.65 lakh crore rupees in 2019-20 as GST compensation. However, the amount of taxes collected during 2019-20 was 95,444 million rupees.
The compensation payment amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.
During April-July of the current prosecutor, the total compensation owed to the states amounts to more than Rs 1.51 lakh crore.
.
