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Home / India News / Most states choose Rs 97k crore borrowing to plug GST deficit

Most states choose Rs 97k crore borrowing to plug GST deficit

The Centre has already received approval of 21 states for the first option of borrowing Rs 97,000 crore to plug the shortfall accruing because of implementation bottlenecks; the states wouldn’t have to pay either the principal or interest.

india Updated: Sep 21, 2020, 00:05 IST
Rajeev Jayaswal
Rajeev Jayaswal
Hindustan Times, New Delhi
As per the GST law, the cess collected on sin goods and luxury products  such as liquor, cigarettes, other tobacco products, aerated water, automobiles and coal will cease to exist after June 30, 2022, unless the council extends it further.
As per the GST law, the cess collected on sin goods and luxury products such as liquor, cigarettes, other tobacco products, aerated water, automobiles and coal will cease to exist after June 30, 2022, unless the council extends it further. (PTI)

A majority of state governments have chosen to borrow Rs.97,000 crore to plug a shortfall in revenue from the Goods and Services Tax (GST) rather than borrow the entire deficit of Rs.2.35 lakh crore, which may leave no choice to dissenting states but to fall in line, finance ministry officials said.

Otherwise, states that have opposed the proposal risk would have to wait 19 months to get the money, the officials said.

The Centre has already received approval of 21 states for the first option of borrowing Rs 97,000 crore to plug the shortfall accruing because of implementation bottlenecks; the states wouldn’t have to pay either the principal or interest.

Even Manipur, which had initially opted for the second option of borrowing the entire Rs 2.35 lakh crore shortfall, accruing as a result of both implementation issues and the Covid-19 pandemic, has now revised its decision in favour of the first option, the officials {two} with direct knowledge of the matter said, requesting anonymity. The larger borrowing comes with significant interest costs

The officials said the Centre is confident that the first option will be approved by the GST Council, which is headed by the Union finance minister and comprises state finance minister, as it needs only 20 states to pass any resolution if some members insist on voting.

Opposition-administered states such as Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal have not yet communicated their choices to the government as yet, the officials said.

States and Union territories that are in favour of the first option are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh, the officials said.

The two options were put to the states at the 41st meeting of the GST Council on August 27. Some states, where opposition parties are in power such as Delhi, Kerala, Punjab, West Bengal (WB), Maharashtra and Chhattisgarh,, have opposing the Centre’s proposals, insisting that the central government borrow the money and reimburse them, instead..

“If the rest of the states do not submit their options before the due GST Council meet on 5th October 2020, then they will have to wait till June 2022 to get their compensation dues, subject to the condition that the GST Council extends the cess collection period beyond 2022,” one of the officials said.

As per the GST law, the cess collected on sin goods and luxury products such as liquor, cigarettes, other tobacco products, aerated water, automobiles and coal will cease to exist after June 30, 2022, unless the council extends it further.

At the time of introducing the new indirect tax regime in July 2017, the GST law assured states a 14% increase in their annual revenue for five years (up to June 30, 2022); any revenue shortfall should be made good through the compensation cess levied on luxury and sin goods.

“Manipur, the only state which had earlier opted for the option 2, later preferred to change it to option-1,” one of the officials said. Some states are expected to give their borrowing options in a day or two, he added.

The 41st meeting of the GST Council was held against the backdrop of the opinion of the attorney general (AG) expressing the opinion that there was no obligation on the Centre under the GST laws to compensate state governments for the loss of revenue, a second official said.

“It is the GST Council and not the Central government which has to find ways, according to the attorney general, to meet the compensation shortfall,” he added.

It is expected that the GST Council’s meeting on October 5 would be stormy as the Opposition states would not relent easily on the subject. Addressing a press conference on August 30, West Bengal finance minister Amit Mitra said huge debt was being thrust on states in the name of “act of God” — a reference to the phrase used by Union finance minister Nirmala Sitharaman to describe the Covid-19 pandemic. Delhi deputy chief minister Manish Sisodia termed the Centre’s move a “betrayal” of federalism.

Kerala finance minister (FM) Thomas Isaac had tweeted on August 31, “FMs of Punjab, Delhi, WB, Chhattisgarh,Telengana and Kerala agreed to reject the Centre’s options on GST compensation .Our option: the central government to borrow the entire compensation due regardless of the acts of God, humans or nature , to be paid back by extending the period of cess.” Isaac had tweeted on September 9, “I welcome the new stance of the Centre that it was never its idea to deny full GST compensation. Glad to be corrected. But deferring half the compensation for better times, ipso facto, is deferring public expenditures to better times. It is the surest way of deferring future good days.”

States and union territories (UTs) require Rs 3 lakh crore GST compensation in the current financial year, an 82% jump from 2019-20 because of a sharp fall in the tax revenue, as the economy has been severely hit by the Covid-19 pandemic and the resultant 68-day nationwide lockdown, the officials said.

According to an official statement released on July 27, the total amount of compensation paid to states and UTs in 2019-20 was Rs 1,65,302 crore, while the total amount of cess collected in that year was Rs 95,444 crore. The lower revenue collection was primarily due to subdued economic growth. India’s gross domestic product (GDP) growth had slowed to 4.2% in fiscal 2019-20, the lowest in 11 years.

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