“Cessation of compensation collection will extend beyond the five-year transition period, that is, beyond June 2022, for as long as is necessary to fill the income gap. More details for work,” said the ministry in a statement.
While 21 states, mostly governed by the Bhartiya Janata Party or parties that have supported it on some issues, until mid-September had chosen to borrow ₹97,000 crore to cover the GST revenue shortfall in the current fiscal, most opposition-led states such as West Bengal, Punjab and Kerala continue to demand that the center borrow instead of the states and another meeting will take place next week.
“Ten states demand that full compensation be paid to the states during the current year according to the provisions of the law and that the center must borrow. The decision was postponed until the next meeting on October 12,” said the Minister of Kerala Finance, Thomas Isaac.
“No one is going to be denied the compensation that has arisen from the implementation of the impact of GST and COVID. It is being discussed with the States. Around 20 States have written that they opt for Option 1,” added Sitharaman.
In addition, the Finance Minister added that the compensation rate collected this year amounts to approximately ₹Rs 20 billion will be disbursed to all states tonight.
Briefing reporters after the GST meeting, he said that the GST Council has addressed the long-pending issue of the Integrated Goods and Services Tax.
Previously, there was no formula for the refund of the Integrated Goods and Services Tax (IGST), which had caused several anomalies in its distribution, he said.
The minister said that the compensation fee collected this year so far, amounting to about Rs. 20,000 crore, will be disbursed to all states tonight.
A committee has been formed under the chairmanship of Bihar’s Chief Deputy Minister Sushil Modi to solve the IGST problem.
In the current prosecution, the states are looking at a staggering ₹Goods and Services Tax (GST) income deficit of Rs 2.35 million.
Of this, according to the Center’s calculation, approximately ₹97,000 crore are due to implementation and the rest of GST ₹Rs 1.38 crore lakh is the impact of COVID-19 on state revenue.
The Center in August gave states two options to borrow ₹97,000 crore from a special window provided by the RBI or ₹Rs 2.35 crore lakh from the market and has also proposed extending the offsetting tax applied to luxury, demerit and sin goods beyond 2022 to repay the loan.
The total deficit in GST collection estimated at ₹Rs 2.35 million lakh, said Finance Secretary Ajay Bhushan Pandey. Of the total deficit, ₹Rs 97 billion is due to the GST deficit, while the rest is due to the Covid-19 pandemic. During the last meeting in August, the Center presented two options to states to cover the GST deficit.
The two options before states were 1) A special window can be provided to states, in consultation with the Reserve Bank of India, at a reasonable interest rate for the loan of ₹97,000 crore. The amount can be repaid after five years (of GST implementation) ending in 2022 from the collection of taxes. 2) The second option is to borrow the ₹Rs 2.35 million lakh deficit under special window.
So far Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarrakhand and Uttarrakhand Pradesh has opted for the first loan option.
Paying the GST compensation to states became a problem after revenue from the imposition of the fee began to decline since August 2019.
The Center had to immerse itself in the excess of the amount collected during 2017-18 and 2018-19.
The Center had released about ₹1.65 lakh crore in 2019-20 as GST offset. However, the amount of taxes collected during 2019-20 was ₹95,444 crore.
The compensation payment amount was ₹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 exceeds ₹Rs 1.51 lakh.
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