The Kerala government canceled a meeting on Saturday to discuss legal options to resolve the goods and services tax (GST) offset problem with the Center, days after the Union’s finance minister, Nirmala Sitharaman, clarified that the central government will borrow ₹ 1.1 lakh crore from the market. on behalf of the states and pass them the same as a loan.
HT reported Saturday that since the Center agreed to borrow ₹ 1.1 lakh crore from a special Reserve Bank of India (RBI) window and re-lend it to states, some of the seven states that were not according to the initial plan they could now enroll. Their main concern was higher interest costs if individual states approached the market separately.
“CM Kerala postpones high-level meeting scheduled to discuss approach to SC [Supreme Court] on the GST issue, in light of the new Union FM initiative. Having amicably resolved the question of who should borrow, we hope that you will address the question of how much to borrow through dialogue with state FMs, ”Kerala Finance Minister Thomas Isaac tweeted on Saturday.
An official from the Union Finance Ministry said the Center and the Council of GST, the main federal body for indirect tax, are open to discussion. “Members can raise any issue in Council that is debated. But preventing states willing to borrow was not possible under Article 293, “said the official, requesting anonymity.
Also read: Jharkhand rejects the Center’s loan offer in lieu of GST compensation
On August 27, the Center gave states the option to borrow ₹ 97,000 crore (the shortfall resulting from the GST implementation problems) without having to pay principal or interest or the entire income shortfall of ₹ 2.35 lakh crore of projected tax for this fiscal year. The amount of Rs 97,000 crore was subsequently raised to Rs 1.1 lakh crore on 5 October. Some states objected and insisted that the Center would have to make the loan.
While 10 states originally opposed the plan, this number was reduced to seven by Wednesday, with some saying they would consider legal options. The seven breakaway states are Chhattisgarh, Jharkhand, Kerala, Punjab, Rajasthan, Telangana, and West Bengal. Puducherry previously indicated his preference for the borrowing option, but the Expenses Department had not yet received a formal communication, the official said.
The official said that all states would eventually agree as “there is no dispute” and the GST Council is committed to resolving “all differences.” “Loans of ₹ 1.1 crore are being taken, which will help cash-strapped states. Meanwhile, GST’s collection is expected to improve in the coming months. Not only will it reduce the revenue shortfall, but it will also increase tax collection. A review of the financial situation in the Board after the third quarter [December] You could see a significant reduction in the need for more loans. This is a dynamic situation and it will be reviewed, ”said the official.
The GST Council is a federal body, chaired by the Union finance minister, and members include state finance ministers. Until the recent controversy, all his decisions were made on the basis of consensus.
Also read: Dissident states likely to accept GST solution
The Center’s decision on Thursday followed by Sitharaman’s letter to the states softened the position of some dissident states, a state government official said on condition of anonymity.
Sitharaman wrote to the states: “I am also sensitive to the fact that the states must be protected from the adverse consequences of increased indebtedness in the form of passive interest and added debt. Under Option-I, the Government will organize the loan in such a way that the cost is equal to or close to the interest rate of the Government of the Union. “
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