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13 States Opt For Centre’s “Borrow” Plan Amid GST Compensation Row

The centre is hard-pressed on paying GST dues to states amid the coronavirus disaster

New Delhi:

Thirteen states have given their borrowing choices proposed by the products and providers tax council to satisfy shortfall in compensation from the centre amid the coronavirus pandemic, sources within the Finance Ministry have stated. Six extra states – Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh – will give their choice in a day or two.

The 12 states that opted to borrow funds below “Option 1” are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh, Uttarakhand and Odisha. Only Manipur has opted for “Option 2”.

The first choice permits states to borrow the tax assortment shortfall because of the change to the GST, estimated at Rs 97,000 crore, by issuing debt below a particular window coordinated by the Finance Ministry. The second choice permits states to borrow the complete compensation shortfall of Rs 2.35 lakh crore, together with the shortfall because of coronavirus disaster, by issuing market debt.

Some states have submitted their views to the chairperson of the GST Council and are but to resolve on the choices. The two choices have been determined by the GST Council in a gathering on August 27.

“The council meeting took place in the backdrop of the opinion of the Attorney General for India on the compensation cess issue where he has opined that there is no obligation on the centre under the GST laws to compensate for the loss of revenue. According the Attorney General, it is the GST Council which has to find ways to meet the shortfall in compensation and not the central government. Therefore, after the meeting the GST Council offered two options to the states to borrow,” sources have stated.

However, it was reported that the centre’s high lawyer – earlier than the assembly of the GST Council – had requested the federal government to compensate states absolutely for the lack of GST income amid the coronavirus disaster.

The Congress had known as it a “sovereign default” and going again on constitutional ensures that had been the rationale the states had come on board with the GST plan.

“It was discussed in the recent GST Council meeting that in the current economic scenario it may not be possible to increase tax rates or do rate rationalisation to meet up the compensation shortfall. However, borrowing could be an option to address this challenge. Thus, the central government is committed to helping the states to the utmost to meet the compensation shortfall through borrowing,” sources stated.

The centre is hard-pressed on paying GST dues to states that haven’t earned a lot this 12 months because of months of lockdown necessitated by the COVID-19 disaster. Punjab, for instance, has stated it might see a income deficit of Rs 25,000 crore this 12 months.

GST collections together with compensation cess to the states had been falling wanting targets even earlier than the coronavirus pandemic, making it troublesome for the centre to compensate the states.

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