NEW DELHI : Monday’s GST Council meeting may turn into a stormy affair as states not governed by the BJP are still at odds with the Center on the issue of compensation.
While 21 states, mostly governed by the BJP or parties that have supported it on issues, had opted until mid-September to borrow ₹Rs 97 billion to cover the GST revenue shortfall in the current opposition-led fiscal states of West Bengal, Punjab and Kerala have yet to accept 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 prosecution, the states are looking at a staggering ₹Goods and Services Tax (GST) revenue shortfall of Rs 2.35 million.
Of this, according to the Center’s calculation, approximately ₹Rs 97 billion is 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.
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 that require 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 been of the opinion that the GST Council has to find ways to cover any revenue shortfalls arising from the GST implementation.
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 crore lakh 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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