Amid the chorus for GST compensation from states, the Centre has conveyed that there is a need to factor in the “abnormal situation” due to the coronavirus pandemic, which it described as an “act of God”, indicating that there was no insurance for 14% growth in GST collections during these times.
Three years ago, while introducing GST, the Centre had promised to compensate states for “revenue loss”, if collection growth was under 14% in a year. “Compensation is a larger issue. The Centre is not going back on its promise, but should it not enforce the force majeure clause since this is an event triggered by things beyond anyone’s control? It is an ‘act of God’,” an official told TOI.
Data presented at the GST Council meeting on Friday showed that GST collections had shot up to over Rs 62,000 crore in May — almost twice the level seen in April — but 38% lower than a year ago. A large part of the sequential jump was attributed to payments for April spilling over into May given the extended deadline. In any case, the actual numbers will only be known after a few months as the Centre is not enforcing the payment and filing deadline.
While collections during April and May have been around 45% of monthly average (of a shade over Rs 1 lakh crore), is it fair for the states to demand 114%?” said a source. “Haven’t their VAT, excise and property tax collections suffered,” added another source.
The Centre has, however, agreed to look into the issue of compensating states after finance minister Nirmala Sitharaman suggested in March that the Council could look at the option of market borrowings. On Friday, her party colleague and Bihar deputy chief minister Sushil Kumar Modi is learnt to have pointed this out.
A state finance secretary told TOI that “invoking the force majeure clause” was not provided for in the statutes, although the Centre has made it clear that the GST Council needs to arrange for the compensation. “Technically, they (Centre) are right. They are in no position to pay, given that there was a shortfall last year too,” the official said.
A state finance minister conceded that it may not be possible for the Centre to compensate if a state fails to achieve 14% annual growth in GST collections. “Pre-lockdown too, there was a massive gap because 14% growth was assured. The gap will rise given the economic situation,” the minister said.
In fact, during the GST Council meeting in Goa too, the issue had been flagged since the average GDP growth had slowed down from the earlier highs. “To achieve 14% GST growth, with GDP growth of 6% is tougher than at 8-9%,” a state revenue secretary added.
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