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BJP and non-BJP states join hands to take on Modi govt. over unpaid GST dues

The Goods and Service Tax (GST) Council met on the 27th of August, 2020 to discuss the issue of compensation paid to states for the revenue loss incurred on the implementation of GST. The Council ended the meeting by reaching a decision to offer the states two options.

One, the states are given the option of borrowing from the market with the consultation of the RBI, the projected GST shortfall of Rs.97000 crore. A 0.5% relaxation is provided to the states in the borrowing limit under The Fiscal Responsibility and Budget Management (FRBM) delinked from all the conditions as part of pandemic package announcement. This amount can be repaid after 5 years of GST, ending June 2022, from the compensation cess fund.

Two, the states could borrow the entire projected shortfall of Rs.2.35 lakh crore facilitated by the RBI. This borrowing is based on the account of faltering GST collection and the expected shortfall due to the pandemic.

The states responded to these options by saying that the centre is ignoring its moral responsibility to the states. States like Punjab, Maharashtra, West Bengal, Puducherry and many more, both BJP and Non-BJP ruled states have opposed the idea of the states borrowing individually.

However, the states are ready to meet halfway. The states may pitch for a mechanism where the states may borrow from the market but the Centre will be responsible for the repayment of the borrowings along with the interest. The states proposed the idea of the Centre transferring funds from The Consolidated Funds of India, while some other states’ representatives proposed the idea of increasing the cess fund by increasing the cess on items or widening the scope of luxury items which includes cigarettes, alcohol, tobacco etc.

According to the GST (Compensation to States) Act, 2017, states are guaranteed compensation for loss of revenue on account of implementation of GST for a transition period of five years (2017-22) by the GST Council. The compensation is calculated based on the difference between the states’ current GST revenue and the protected revenue after estimating an annualised 14% growth rate from the base year of 2015-16.

However, the Council started facing shortfall issues when it delayed the August-September 2019 compensation payment. The then 2019 delayed payments were fulfilled by the Centre in the Financial Year of 2020-2021. This was mainly due to the economic slowdown faced in 2019. Now, the ongoing pandemic has affected the economy even worse.

Reporter: Disha Srinath

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