GST shortfall of Rs 2.35 lakh crore in FY21, two options mooted to compensate states, says FM
Finance Minister Nirmala Sitharaman, who chaired the 41st GST Council meeting, said the GST shortfall in FY21 was around Rs 2.35 lakh crore. Following a marathon five-hour meeting, Sitharaman said two options of compensating states were discussed.
The 41st Goods and Services Tax (GST) Council meeting, that held today, was chaired by Finance Minister Nirmala Sitharaman with the agenda of making up for shortfall in states’ revenues amid the pandemic. Minister of State (MoS) for Finance Anurag Thakur, Finance Ministers of States and Union Territories (UT) and senior officers from the Union Government and states also attended the meeting.
41st GST Council Meeting | HIghlights
- There may be some states which may prefer to get hard-wired compensation rather than going to market to borrow more. Option was tailor-made considering that states can take a call depending on compensation they expect to come: FM Nirmala Sitharaman on GST compensation to states.
- Govt will give a further relaxation of 0.5% in states' borrowing limit under FRBM Act as 2nd leg of Option 1. States can choose to borrow more, beyond expected compensation itself, since that is the injury caused by COVID-19.
- Two-wheelers may merit to go to the GST council for a consideration: Finance Minister Nirmala Sitharaman on being asked about GST cut for two-wheelers.
- During April-July 2020, total GST compensation to be paid is Rs 1.5 lakh crores, this is so because there was hardly any GST Collection in April and May: Revenue Secretary, Finance Ministry.
- Once the arrangement is agreed upon by GST Council, we can proceed fast & clear these dues and also take care of the rest of the financial year. These options will be available only for this year; in April 2021, the Council will review &decide action for 5th year.
- Option 2 presented to GST Council was that the entire GST compensation gap of ₹ 2,35,000 crore of this year can be met by states, in consultation with RBI. These options will be sent to states for a view within 7 Days & will apply for this fiscal year only: Finance Secretary
- AG's clear opinion was that compensation gap cannot be met from India's consolidated fund. Option 1 presented to GST Council was to provide a special window to states, in consultation with RBI to provide Rs 97,000 crores at a reasonable interest rate.
- GST collection has been severely impacted this year, due to COVID-19 pandemic. As per GST Compensation Law, states need to be given compensation, said Finance Secretary Ajay Bhushan Pandey.
- Central govt released more than Rs 1.65 lakh crore as GST compensation to states for FY 2019-20, including Rs 13,806 crore for March. Total amount of compensation released for 2019-20 is Rs 1.65 lakh crore, whereas cess amount collected was Rs 95,444 crore, Finance Secretary added.
- Attorney-General said that GST Compensation has to be paid for a transition period- from July 2017 to June 2022. Revenue has to be protected compensation gap to be met from cess fund, which in turn has to be funded from levy of cess, said Ajay Bhushan Pandey.
- The Attorney General of India said that protected revenue has to be protected but the compensation gap to be met from cess fund, which in turn has to be funded from levy of cess, Finance Secretary mentioned.
- As mentioned by Finance Minister in GST Council meeting held in March, legal views of the matter were sought from the Attorney General of India who said that GST compensation has to be paid for transition period from July 2017 to June 2022.
- Compensation gap which has arisen this year (expected to be Rs 2.35 lakh crores), is due to COVID-19 as well. The shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crores, Finance Secretary added.
On Wednesday, Congress interim President Sonia Gandhi held a meeting with Chief Ministers of Congress-ruled states and their counterparts of West Bengal, Maharashtra and Jharkhand on the issues related to GST dues of states and said that refusal to pay GST compensation to states is nothing short of betrayal on the part of the Narendra Modi government.
In the last meeting held on June 12, the GST Council decided to waive off fees for late filing returns between July 2017 to January this year in a bid to minimise the impact of COVID-19 crisis on micro, small and medium enterprises (MSMEs).