Centre Gives Two Options To States On GST Compensation

The Centre on Thursday gave two options for compensating states on the Goods and Services Tax (GST) to bridge revenue shortfall as the economy faces a prospect of contraction in current fiscal year due to COVID-19 crisis.

The first option provides a special window to states in consultation with the Reserve Bank of India (RBI) to provide Rs 97,000 crore at a reasonable rate of interest. This money can then be repaid after five years from the collection of cess.

The second option is that the entire GST compensation gap of Rs 2.35 lakh of this year can be met by states in consultation with the RBI.

“Two options were placed before states. We told them that we will facilitate talking with RBI and help getting G-security linked interest rates so that each state does not have to struggle for loans,” said Finance Minister Nirmala Sitharaman after the five-hour virtual meeting of 41st GST Council here.

“The states have requested us to lay down both options in detail, and give them seven full working days to deliberate on it and get back. A brief GST Council meeting may be held again,” she said.

“Once the arrangement is agreed upon by GST Council, we can proceed fast and clear these dues and also take care of the rest of financial year,” said Sitharaman.

These options will be available only for this year. In April 2021, the Council will review and decide action for the fifth year.

Sitharaman said the first option has two legs. One: the Centre facilitating states through RBI in getting loans for the portion arising out of GST implementation. Two: the gap arising in compensation due to the extraordinary situation and Act of God in the form of COVID-19.

She emphasised there will be no rate increases to make up for the shortfall in cess.

Finance Secretary Ajay Bhushan Panday said the total GST compensation to be paid during April to July is Rs 1.5 lakh crore as there was hardly any GST collection due to COVID-19 nationwide lockdown.

The annual GST compensation requirement is estimated to be about Rs 3 lakh crore and cess collection is expected to be around Rs 65,000 crore, leaving the Centre with an annual compensation gap of Rs 2.35 lakh crore.

The Finance Minister chaired the meeting which was also attended by Minister of State for Finance Anurag Thakur, finance ministers of various states and union territories and senior officers from the Centre and states. (ANI)