The 41st GST Council meeting chaired by Finance Minister Nirmala Sitharaman held on 27th August 2020. The meeting began through video conferencing at 11 am with the agenda of compensation to states.
The Finance Secretary addressed the media via VC around 4.30 p.m. The shortfall for the FY 2020-21 works out to be Rs 2,35,000 crore. Out of the total shortfall of Rs 2.35 lakh crore, Rs 97,000 is on account of of GST and the remaining is due to outbreak of the COVID-19 pandemic.
In the meeting of the GST Council, the Centre provided the states with two options to carry out the borrowing process.
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The two options given to the states by the Centre are as follows:
- To borrow up to Rs 97,000 crore, which is the shortfall in the GST revenue compensation, or
- To borrow the entire Rs 2.35 lakh crore, which is the total shortfall, including the impact of COVID-19.
The Centre further specified that the burden of the borrowing will not fall upon the states as it would be borne by extension of the cess imposed on sin and luxury goods. Moreover, the borrowings will be facilitated through a special window under the consultation of the Reserve Bank of India (RBI).
The states must evaluate both these options within seven working days when the GST Council will again meet to finalise the choices.
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Briefing on the two options, Ms Sitharaman said, “If a state goes for option 1, it will borrow less, but its compensation entitlement will be protected. So choice is between borrowing less and getting cess later or borrow more and pay for it using cess collected during transition period.
In 2017, when the new tax regime was introduced, the states were mandated to increase their share of revenues by 14 per cent per year, while the Centre promised to compensate states for five years if they failed to achieve that target. According to news agency Reuters, states’ revenues fell more than 40% year-on-year in the three months to June due to economic fallout from a coronavirus lockdown.
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