Kerala’s government canceled its high-level meeting to discuss a legal option to solve the goods and services tax (GST) problem on Saturday, days after the Union’s finance minister, Nirmala Sitharaman, said the government central will borrow 1.1 lakh crore from the market. on behalf of the states and pass them the same as a loan.
The move indicates that the Kerala government, one of seven dissenting states that had opposed the Center’s previous loan options to cover the GST deficit and had threatened to approach the Supreme Court on the matter, is softening its position. about the topic.
HT reported on Saturday that since the Center agreed to borrow Rs 1.1 lakh crore from a special window of the Reserve Bank of India (RBI) and re-lend it to states, some of the seven states that disagreed with the initial plan could now sign. The Union government’s move, announced on Saturday, was expected to allay the primary concern of paying higher interest costs if states had to individually approach the market.
“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 he will address the question of how much to borrow through dialogue with state FMs, ”Kerala Finance Minister Thomas Isaac said in a tweet 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.
On August 27, the Center had given the states the option to borrow Rs 97,000 crore (the shortfall resulting from GST implementation problems) without having to pay principal or interest or the entire estimated income shortfall of Rs 2.35 lakh crore. indirect tax (including that resulting from the Covid-19 pandemic) projected for this fiscal year. The amount of Rs 97,000 crore was subsequently raised to Rs 1.1 lakh crore on October 5.
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 were: Chhattisgarh, Jharkhand, Kerala, Punjab, Rajasthan, Telangana, and West Bengal. Puducherry had previously indicated his preference for the loan option, but the Expenses Department has 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.”
“The loan of Rs 1.1 million lakh is ongoing, which will help the 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. HT reported it on Saturday.
The GST Council is a federal body, chaired by the Union finance minister, and among whose members are the finance ministers of the states, it is the body that decides tax rates and other GST-related matters. Until the recent controversy, all their decisions had been made on the basis of consensus.
The Center’s decision on Thursday followed by Sitharaman’s letter to the states softened the position of some dissident states on the issue of severance of compensation, said a state government official who requested anonymity.
Sitharaman wrote to states on Thursday, saying: “I am also sensitive to the fact that states must be protected from the adverse consequences of increased indebtedness in the form of interest liabilities as well as debt. Under Option-I, the Government of the Union 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. “
The finance minister’s letter said that the central government faces “very serious” budget restrictions. “Long-term macroeconomic stability is the responsibility of the Center; but it is also in the interest of the states that are partners in our system of cooperative federalism. The good faith opinion of the central government on this macroeconomic issue is that borrowing from the Center’s books will not be optimal in the national interest, ”Sitharaman wrote.
Commenting on the one-stop shop loan facility announced Thursday, he said: “We have now resolved some key aspects of the special window. Based on the suggestions of many states, it has now been decided that the central government will initially receive the amount and then consecutively pass it on to the states as a loan. This will allow easy coordination and simplicity in borrowing, as well as ensuring a favorable interest rate ”.
He assured state governments that all compensation arrears “eventually” will be paid to states. He thanked the states for their “collaborative” approach that resulted in a “practical and constructive solution” to this compensation problem.
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