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GST compensation cess already extended till March 2026: FM

By, Bengaluru
Mar 10, 2022 12:23 AM IST

Her statements come even as the Karnataka chief minister Basavaraj Bommai-led Bharatiya Janata Party (BJP) government has sought an extension of the GST compensation, which is slated to end in June this year.

Union finance minister Nirmala Sitharaman on Wednesday said that the goods and services tax (GST) compensation cess has already been extended till March 2026.

Union finance minister Nirmala Sitharaman lighting the lamp during an interaction with BJP workers, social media volunteers, corporate professionals and representatives from BJP Economic Cell during a programme, in Bengaluru on Tuesday. (ANI)

“First of all, the GST council has already extended the compensation cess to up to March 2026. It’s already extended for paying the loan which was taken for all states in 2020 for the compensation which could not be paid that year,” Sitharaman said in Bengaluru on Wednesday.

Her statements come even as the Karnataka chief minister Basavaraj Bommai-led Bharatiya Janata Party (BJP) government has sought an extension of the GST compensation, which is slated to end in June this year.

Sitharaman said that this issue was something that had to be taken up by the GST council and not her alone.

“So for, the total amount between 2020 and somewhat in 2021, the amounts that we could not pay, which was due to the states 14% compounded interest each year, we had taken a conscious call in the council that we will borrow this,” the finance minister said.

“The centre will borrow back-to-back and give it to the states and that amount, which has to be therefore repaid -- the loan taken and also the interest -- the council is where we seized and approved of it. Both, the loan and the repayment with the interest itself will require compensation cess to be extended till March 2026 and that’s what we have done. The amount collected from that extended cess collection will go towards payment of compensation amount borrowed and the interest on it. It’s already extended,” she said.

The erstwhile BJP government under BS Yediyurappa in September 2020 had decided to go with the first of the two options to make up for the shortfalls in goods and services tax (GST) compensation from the union.

Option 1 or shortfall arising out of GST implementation, the state government said, would be “more beneficial” for the state and help in “augmenting its revenue in the present financial year”.

“Under Option I, Karnataka would be eligible for total compensation of 18,289 crore. Out of this, 6,965 crore would come from the cess collected. For the remaining amount of 11,324 crore, Karnataka would be able to borrow through a special window with the entire burden of principal and interest repayment being met out of (the) compensation cess fund in the future,” the state government had said in a statement at the time.

In the state budget for 2022-23, which was presented by Bommai on March 5, Karnataka has estimated a shortfall of 3,000 crore in GST compensation after taking into account the slowdown in the economy. The shortfall estimates went up almost four-fold due to the Covid-19 induced lockdown.

Yediyurappa had estimated massive shortfalls that Karnataka would have to endure due to the new calculations of the 15th Finance Commission that reduced the state’s share from 4.71% of the total allocation to 3.64%.

On account of lower revenues from the union, the Bommai government, in its budget on March 4, had presented the second consecutive revenue deficit budget in as many years.

Karnataka’s fiscal deficit (FD) has seen a sharp uptick from 19,169 crore in 2015-16 to R 48,470 crore indicating the plummeting financial condition of one of the most industrious states in the country, data shows.

According to the Medium Term Fiscal Plan 2022-26 which outlines the medium term fiscal plans of the government, the state’s FD as a percentage of GSDP (gross state domestic product) stood at 2.82% in 2021-22 from 2.6% in 2015-16.

To be sure, the GSDP of Karnataka stood at 7.35 lakh crore in 2015-16 which has since gone up to 17.21 lakh crore.

The chief minister said that he will borrow 72,000 crores in the new fiscal.

The total liabilities of the state is expected to go up from 4.58 lakh crore in the current fiscal to 5.18 lakh crore in 2022-23. Further, this is expected to rise to nearly 7.40 lakh crore by 2025-26.

On what the union thinks of Karnataka’s growing debt, said Sitharaman; “I don’t think we can take a call by state that one state is this and this state is this. It is very much the domain of the states and we don’t separately view it for what were the proportion of it. We don’t do it

Although of course in the calculation of the general debt to GDP all the state’s inputs will also be taken,” she said.

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