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Home / India News / GST severely hit due to Covid-19 pandemic, says Centre | Highlights

GST severely hit due to Covid-19 pandemic, says Centre | Highlights

At the meeting, two options of compensating states were discussed, including borrowing from the Reserve Bank of India (RBI).

india Updated: Aug 27, 2020, 17:39 IST
hindustantimes.com | Edited by Niyati Singh
hindustantimes.com | Edited by Niyati Singh
Hindustan Times, New Delhi
Finance Minister Nirmala Sitharaman held  41st Goods and Services Tax (GST) Council meeting on Thursday.
Finance Minister Nirmala Sitharaman held 41st Goods and Services Tax (GST) Council meeting on Thursday.(Screengrab)

The Goods and Services Tax (GST) collection has been severely impacted due to coronavirus pandemic this year, says Revenue Secretary after GST Council meeting on Thursday.

The Finance Minister Nirmala Sitharaman held 41st Goods and Services Tax (GST) Council meeting today.

The states were guaranteed payment for any loss of revenue in the first five years of GST implementation from July 1, 2017 under the Central Goods and Services Tax Act. However, due to the Covid-19 outbreak, the compensation cess collection have jumped.

At the meeting, two options of compensating states were discussed, including borrowing from the Reserve Bank of India (RBI).

The finance minister said that the options discussed for meeting GST shortfall are only for the current fiscal. The GST Council will look at the issue again in April next year.

The meeting was attended by Anurag Thakur, Minister of State (MoS) for Finance, finance ministers of various states and Union Territories (UT) and senior officers from the Union Government and states. After 5-hour-long meet, the GST Council held a video press conference with the media.

“GST collection has been severely impacted this year, due to Covid-19 pandemic. As per GST Compensation Law, states need to be given compensation, “ Finance Secretary said during the conference.

Here are the highlights from the video conference:

- Central government 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

- 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: Ajay Bhushan Pandey, Finance Secretary on GST

- 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: Finance Secretary Ajay Bhushan Pandey

- The Attorney General of India said that protected revenue has to be protected but compensation gap to be met from cess fund, which in turn has to be funded from levy of cess: Finance Secretary Ajay Bhushan Pandey

- 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 on 41st GST Council Meet

- 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 97000 crores at a reasonable interest rate: Finance Secretary Ajay Pandey

- Option 2 presented to GST Council was that the entire GST compensation gap of Rs 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 and will apply for this fiscal year only: Finance Secretary

- States have asked us to give them 7 working days to think about the options. These options would be available only during the current year, the situation would be reviewed next year. We may have another GST meet soon: Finance Minister Nirmala Sithaaraman

- 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: FM Sitharaman

- 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

- 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

- Annual GST compensation requirement is estimated to be around Rs 3 lakh crores, and cess collection is expected to be around Rs 65,000 crores, leaving us with an annual compensation gap of Rs 2.35 lakh crores: Revenue Secy, Finance Ministry

- 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 the media briefing of 41st GST Council meet

- The government 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: FM Nirmala Sitharaman on GST compensation to states

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