GST Council Meeting Live: Centre Offers States Two Compensation Cess Options
Catch live updates from Finance Minister Nirmala Sitharaman’s press conference after the 41st GST Council meeting.
Watch: Finance Ministry Briefing After GST Council Meeting
States Given Two Options To Make Up For Revenue Shortfall
States were given two options to make up for their revenue shortfall amid the Covid-19 pandemic.
The first option is to provide a special bowrrowing window to states, in consultation with the RBI, to provide Rs 97,000 crore at a "reasonable" interest rate, the finance secretary AB Pandey said after a meeting of the GST Council. This money can then be repaid after 5 years by extending cess collections.
The other option is to meet the entire GST compensation gap of Rs 2.35 lakh crore this year itself after consulting with the RBI.
Both options involve borrowing by states as that’s a better option, Finance Minister Nirmala Sitharaman said. “Two options were placed before states. We told them that we will facilitate talking with the RBI and help to get G-security linked interest rates so that each state does not have to struggle for loans.”
States will also be given a further relaxation in FRBM of 0.5% points for market borrowing. the finance minister said.
States Seek Seven Days To Consider Cess Option
State finance secretaries have asked to send suggestions in a note and sought time of seven days, Finance Minister Nirmala Sitharaman said at the press briefing.
This arrangement will be for current year and the council will again look at the situation in April 2021, she said.
GST Council Meet: Council Discussed The Issue Of Compensation To States, Says Finance Secretary
The current year has seen slowing down of economy due to Covid-19 which has led to low GST collections, said Finance Secretary AB Pandey today after the GST Council’s 41st meeting.
The Attorney General is of the view that compensation needs to be paid to states for five years. But this compensation gap has to be met from the levy of cess. Compensation cannot be paid from Consolidated Fund of India, the attorney general said, adding that levy of compensation can be extended beyond five years.
About Rs 3 lakh crore would be the need of compensation to be paid to states while compensation cess collected would be Rs 65,000 crore. There is an option to borrow the remaining Rs 2.35 lakh crore from the market, the attorney general said, according to Pandey.
April-July compensation is around Rs 1.50 lakh crore, Pandey said.
Nirmala Sitharaman's Press Briefing Delayed; GST Council Meeting Still In Progress
Other Items That Are Expected To Be Taken Up By GST Council Later
On Aug. 25, the finance minister said the GST Council will consider lowering the tax rate on two-wheelers as it’s neither a luxury item nor a sin good. It a “good suggestion”, Sitharaman said while responding to a query at an industry interaction.
GST rate on two-wheelers currently stands at 28%.
A GST rate cut could push up demand for two-wheelers ahead of the festive season but will impact the government’s revenue at a time tax mop-up has fallen because of the Covid-19 pandemic and the economy is set to contract for the first time in more than four decades.
However, this is likely to be discussed in a meeting on a later date.
Earlier this month, a Group of Ministers has agreed that states can individually decide to make e-way bills mandatory for the movement of gold within their territory to check tax evasion.
The panel decided that if states want to implement the e-way bill mechanism for gold and precious stones, they can do so for intra-state movement of the commodity.
Finance Minister Nirmala Sitharaman is set to chair the 41st Goods and Services Tax Council meeting today at 11 a.m. via video conferencing.
The meeting is likely to be a stormy affair as opposition-ruled states unite to pressure the centre to give them the promised compensation for loss of revenue arising from the implementation of GST. The only agenda up for discussion today is the issue of making up for shortfall in states' revenues, according to a PTI report.
The options being explored are market borrowing, raising cess rate or increasing the number of items for levy of compensation cess. Discussion on correction in inverted duty on certain goods like textiles and footwear is also likely, they said.
The Covid-19 crisis has further compounded states' fiscal problems. In a tweet, Kerala Finance Minister Thomas Isaac said, "The solution to GST embroglio is Central Govt to empower GST Council to borrow for meeting the compensation requirement, if necessary through an ordinance, on the strength of future receipts of an extended levy of compensation cess beyond 5 years by an appropriate notification.”
Ahead of the meeting, chief ministers of opposition-ruled states got together on Wednesday to devise a common strategy on the issue. Congress President Sonia Gandhi set the tone for the GST Council meeting by calling the centre's refusal to reimburse the states as nothing short of betrayal of the people by the Modi government.