GST Council Meeting: Centre Offers States Two Compensation Cess Options
Finance Minister Nirmala Sitharaman. (Photographer: T. Narayan/Bloomberg)

GST Council Meeting: Centre Offers States Two Compensation Cess Options


The central government has given states two options for borrowing to meet the shortfall in GST revenues, pegged at Rs 2.35 lakh crore in 2020-21.

Briefing reporters after the 41st GST Council meeting, Union Finance Minister Nirmala Sitharaman said the economy is facing an extraordinary "Act of God" situation, which may result in economic contraction.

According to the Centre's calculations, the compensation requirement by the states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the goods and services tax regime. Hence, total revenue shortfall is estimated at Rs 2.35 lakh crore. Of this, Rs 97,000 crore is on account of GST shortfall, while the rest is due to coronavirus' impact on the economy, Revenue Secretary Ajay Bhushan Pandey said.

Pandey said a special window can be provided to the states, in consultation with the Reserve Bank of India, at a reasonable interest rate for borrowing of Rs 97,000 crore. The amount can be repaid after five years of GST implementation ending 2022 from cess collection.

The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window. "States have been given seven days' time to think over the proposal," Pandey said.

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