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GST Council meeting postponed to October 5

GST Council meeting postponed to October 5

The GST Council meeting slated for September 19 has been postponed to October 5, sources said on Friday.

The 42nd meeting of the Council has been postponed since Parliament would be in session, they added.

The Centre had last month decided that the 41st and  42nd meeting of the Council would be held on August 27 and September 19. However, then the dates for the monsoon session of Parliament was not decided.

The October 5 meeting assumes significance as the Centre and states are at loggerheads over the issue of funding Rs 2.35 lakh crore GST collection shortfall.

Of this, as per Centre’s calculation, about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is the impact of COVID-19 on states’ revenues.

The Centre late last month gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the Reserve Bank of India (RBI) or Rs 2.35 lakh crore from market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

Chief ministers of 6 non-BJP ruled states — West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu — have written to the Centre opposing the options which require states to borrow to meet the shortfall.

Sources said till September 8, as many as 7 states have conveyed to the Centre about their choice of the options.

While Gujarat, Bihar, Madhya Pradesh, Karnataka and Tripura opted for borrowing Rs 97,000 crore, Sikkim and Manipur opted for the second option to borrow Rs 2.35 lakh crore.

The Centre on its part argued that the revenue accruing from GST compensation cess goes to the states and hence the Centre cannot borrow on the security of a tax it does not own.

For April-July, the GST compensation due to states stands at Rs 1.50 lakh crore.

Source: Times-Of-India.


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Entire GST shortfall will be compensated, says Centre

Entire GST shortfall will be compensated, says Centre

States and Union Territories will get full compensation for the shortfall in GST collection this year, the Centre reiterated on Monday. It made it clear that it will be irrespective of the fact whether the shortfall is on account of GST implementation or on account of the Covid pandemic. “It has never been the stand of the Union Finance Minister that the loss of revenue due to Covid would not be compensated. The Central government has, time and again, committed that the entitlement of the States would always be for full compensation. The entire compensation on account of the shortfall in collection of GST will be paid and honoured,” a senior Finance Ministry official said.

Total GST revenue shortfall during FY 2020-21 is estimated at ₹3-lakh crore. Since collection through the compensation cess is likely to be ₹65,000 crore, the net shortfall could be ₹2.35-lakh crore. Out of this, based on 10 per cent nominal growth and other assumptions, the shortfall on account of GST implementation and pandemic are ₹97,000 crore and ₹1.38-lakh crore, respectively. The Centre has proposed two options for States – borrow ₹97,000 crore through a special window or borrow the entire ₹2.35-lakh crore from the open market.

According to sources, working out revenue shortfall on account of GST implementation is just a mechanism to assess how much of the shortfall should be met by borrowing and how much could be deferred. Borrowing for meeting the entire shortfall when the private sector is struggling to stand back on its feet could hurt them badly. If States go for option 1 and borrow ₹97,000 crore, it does not mean they will have to forego the remaining compensation. The remaining compensation will be paid to states after the above borrowing has been fully repaid. Therefore, “where is the doubt about the Centre not meeting its commitment,” asked the official.

Under the GST law, the compensation cess is a tax owned by the states and under Article 292 of the Constitution of India, the Centre can borrow on the security of its own taxes and resources which is Consolidated Fund of India. It cannot borrow in the security of the tax which it does not own, the official explained.

Source: thehindubusinessline.

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Centre gives states two options to meet GST compensation cess shortfall

Centre gives states two options to meet GST compensation cess shortfall

The Centre on Thursday offered two options to states to compensate them amid inadequate cess collections under the goods and services tax (GST) regime.

One was an offer of a special window to states, in consultation with the Reserve Bank of India (RBI), to the tune of Rs 95,000 crore at a reasonable interest rate. The other was for states to borrow Rs 2.35 trillion from the market, with the RBI as a facilitator.

However, the burden of repayment will not be on states. The timeline for cess imposed on sin and luxury goods will be extended beyond June 30, 2022 (up to which states are Constitutionally guaranteed compensation), to help service the debt.

Finance Minister Nirmala Sitharaman told the media that the Centre would facilitate the borrowing, by talking to the RBI. This is to ensure individual states do not rush to the market and raise bond yields.

According to government estimates, Rs 97,000 crore is the shortfall in compensation, as given in a formula under the law, with Rs 2.35 trillion the overall deficit factoring in the Covid situation.

Finance Secretary A B Pandey said collections from the compensation cess were estimated at Rs 65,000 crore for FY21. While the target for compensation under the law is Rs 1.62 trillion, accounting for the impact of Covid-19, the requirement stands at Rs 3 trillion, he added.

The Centre will provide details to states in a couple of days, and they will return to the next proposed Council meeting with their choice, said Sitharaman.
The borrowing mechanism will be there for FY21, after which it will be reviewed in April 2021, said Pandey.

States are guaranteed full compensation for the first five years of the GST regime in case they fail to record 14 per cent growth in revenues from GST on the base year of FY16. They are yet to get a rupee of compensation in FY21 against the requirement of Rs 1.5 trillion for the first four months, said Pandey.

Asked about the issue of raising cess or expanding the same, Sitharaman said the matter was not discussed in the meeting.

As to what the incentive is for states to go for just Rs 97,000 crore and not the entire Rs 2.35 trillion, the FM said it was up to them because some may not like to borrow the amount of shortfall caused by ‘act of God’ Covid-19.

Further, she disclosed that states would be given additional unconditional leeway of 0.5 percentage points of the GDP, as any additional borrowing will lead to fiscal deficit concerns.

States have already been given an unconditional 0.5 percentage point leeway over and above the 3 per cent under the Atmanirbhar Bharat package. Overall, they have been given a two-percentage-point flexibility, though the remaining 1.5 percentage points are based on riders like initiating power sector reforms, and taking steps towards ‘one nation one ration card’.

The GST Council meeting was called to discuss the single-point agenda of compensating states. The Centre also took the opinion of Attorney General K K Venugopal, who advised against taking recourse to the consolidated fund of India for compensating states. Governments — both the Centre and states — collected Rs 21,747 crore from the compensation cess in the first four months of FY21, which was two-thirds of the Rs 32,796 crore mopped up in the corresponding period of FY20.

In fact, collections were muted in the last financial year too. The collection was Rs 95,000 crore but states were given Rs 1.65 trillion after dipping into excess collections from cess of previous

Source: Business-Standard.

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GST Council to meet on Aug 27 to discuss compensation payout to states

GST Council to meet on Aug 27 to discuss compensation payout to states

The GST Council is likely to meet on August 27 to discuss the compensation payout to states and the opinion of the Attorney General on the legality of market borrowing to meet revenue shortfall.

Sources said the 41st meeting of the Goods and Services Tax (GST) Council would be a single agenda meeting on states’ compensation to be held via video conferencing.

Besides, a full-fledged meeting of the Council would be held on September 19, agenda for which is to be decided in due course, they added.

The Attorney General- who is the chief legal officer of the government – has opined that the Centre has no statutory obligation to make up for any shortfall in GST revenues of states from its coffers , sources had said.

They had earlier indicated that following the AG’s opinion, states may now have to look at market borrowings to meet the revenue shortfall and the GST Council will take a final call.

The Centre had in March sought views from Attorney General K K Venugopal on the legality of market borrowing by the GST Council to make up for any shortfall in compensation fund – a corpus created from levy of additional tax on luxury and sin goods to compensate states for revenue shortfall arising from their taxes being subsumed into GST.

The AG had also opined that the Council has to decide on meeting the shortfall in the GST compensation fund by providing the sufficient amount to be credited to the fund.

Sources said the options before the Council for meeting the shortfall could be to rationalize GST rates, cover more items under the compensation cess or increase the compensation cess, or recommend higher borrowing by states to be repaid by the future collection into the compensation fund.

Since raising tax or cess rates might not be feasible in the current pandemic situation, the option that remains is each state borrowing from market against the consolidated fund of the state.

Under the GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

The GST Council has to decide how to meet the shortfall in such circumstances and not the central government, sources added.

Any borrowing of the central government is upon the security of the Consolidated Fund of India. Similarly, borrowing by a state government is upon the security of the consolidated fund of the state.

In either case, it would lead to increased general government debt burden and also a higher fiscal deficit.

The payment of GST compensation to states became an issue after revenues from the imposition of cess started dwindling since August 2019 and the Centre had to dive into the excess cess amount collected during 2017-18 and 2018-19.

The Centre had released over ₹1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during the year 2019-20 was ₹95,444 crore.

The compensation payout amount was ₹69,275 crore in 2018-19 and ₹41,146 crore in 2017-18.

Sourece: Live-Mint.

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GST Council to discuss AG opinion on compensation: Nirmala Sitharaman

GST Council to discuss AG opinion on compensation: Nirmala Sitharaman

Finance minister Nirmala Sitharaman on Saturday said the Attorney General’s view on GST compensation was sought after consultation with the states and a meeting of the GST Council would be held to discuss the legal opinion.

The finance minister was responding to a question on apprehensions raised by certain states about the reported AG opinion on GST compensation.

“This matter was discussed in the GST Council meeting when it met last time. Members expressed their views on the matter and it was decided that legal opinion should be taken from AG,” Sitharaman told reporters.

The GST Council, chaired by the Union finance minister and comprising state counterparts, had in March decided to seek views from the AG, who is the chief legal officer of the government, on the legality of market borrowing by the Council to make good the shortfall in compensation fund.

“The opinion has come…we will hold an exclusive GST Council meeting on the issue of compensation,” Sitharaman said, adding that the date of the meeting will be decided shortly.

According to sources, the Attorney General has opined that there is no obligation on the central government to pay the GST compensation shortfall to the states and GST Council has to decide on ways to make good the shortfall in compensation fund.

The payment of GST compensation to states became an issue after revenues from imposition of cess started dwindling since August 2019 and the Centre had to dive in to the excess cess amount collected during 2017-18 and 2018-19.

Under the Goods and Services Tax (GST) law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under 5 per cent, 12 per cent, 18 per cent and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during the year 2019-20 was Rs 95,444 crore. The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.

Source: The-Times-of-India

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Centre unable to pay GST dues to States: Union Finance Secretary

Centre unable to pay GST dues to States: Union Finance Secretary

Finance Secretary Ajay Bhushan Pandey told the Parliamentary Standing Committee on Finance, headed by BJP MP Jayant Sinha, at a meeting on Tuesday that the government is in no position to pay the GST share of States as per the current revenue sharing formula, sources said.

According to at least two members who attended the meeting, Mr. Pandey’s comments were in response to a question on the revenue shortfall due to the pandemic. The members then questioned him on how the government could renege on the commitment to the States. At this, “he [Mr. Pandey] pointed out that the GST Act has provisions to rework the formula for paying compensation to the State governments if the revenue collection drops below a certain threshold,” one of the members said on condition of anonymity.

The Finance Ministry on Monday said the Centre had released the final instalment of ₹13,806 crore of GST compensation for the financial year 2019-20.

The GST Council was scheduled to meet in July to try and work out the formula to rework the compensation to the States. However, the meeting has not been convened so far.

The opposition members meanwhile were up in arms, as the committee which was meeting for the first time since the nationwide lockdown instead of discussing the State of Indian economy, took up the topic “Financing the innovation ecosystem and India’s growth companies”.

Congress MPs Manish Tewari, Ambika Soni, Gaurav Gogoi and NCP MP Praful Patel, according to sources, vociferously, demanded that the Committee discuss the current state of economy which has suffered a huge set back because of the pandemic. Mr. Tewari in a letter to Chairperson, Mr. Sinha, had earlier pointed out that the people will consider the Committee to be “delusional” to discuss the chosen topic in a hour of crisis.

According to sources, Mr. Tewari pointed out that even the Budget passed by Parliament on March 23 may no longer be relevant since it was based on certain assumptions about the revenue collections. There is no clarity so far from the government on overall revenue shortfall, he pointed out. Congress MP Gaurav Gogoi said the panel must also scrutinise the efficacy of the government’s rescue package.

It is learnt that Mr. Sinha, the Committee Chairperson, said most of the questions posed by the members were political in nature and cannot be answered by Finance Ministry officials. These can only be replied to by Finance Minister Nirmala Sitharaman and can be taken up when Parliament meets during debates on the subject. in either houses of Parliament.

To this Mr. Praful Patel said if the Standing Committee on Finance cannot discuss even the basic question of the state of economy, then it is better to disband the panel, sources added.

Sources: The-Hindu

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Central Government Released Rs 1.65 Lakh Crore As GST Compensation To States In FY20

Central Government Released Rs 1.65 Lakh Crore As GST Compensation To States In FY20

The central government’s payout to states as compensation towards goods and services tax for the year ended March more than doubled over the last year as a result of slowing economic activity.

The compensation to states was Rs 1,65,302 crore, the Ministry of Finance said in a statement, adding the GST compensation cess, collected by the Centre, stood at Rs 95,444 crore. In 2018-19, the GST cess collected and compensation released to states were Rs 95,081 crore and Rs 69,275 crore, respectively.

The virus outbreak and the world’s most stringent lockdown lasting over more than two months aggravated an already-slowing economy by obliterating consumption—which nearly contributes 60% to the economy. As a result, India’s economy is widely expected to witness its first contraction in nearly four decades.

The central government compensates states bi-monthly as they lost powers to levy taxes such as value added tax with the rollout of GST. The compensation is guaranteed for five years, and is calculated at a growth rate of 14% keeping 2015-16 as the base year. With declining GST collections last year following a demand-led slowdown, the government had stopped releasing compensation bi-monthly due to inadequate collections from GST compensation cess that’s levied on sin or demerit goods.

Since the cess collected was about Rs 70,000 crore less than the requirement to compensate states, the amount collected as excess in 2017-18 and 2018-19 of about Rs 47,271 crore was used for the same. Besides, Rs 33,412 crore—that was transferred to Consolidated Fund of India—as balance IGST in 2017-18, was also utilised to compensate states, the statement said.

The amount of compensation to be given to the states is going to increase substantially this year, Rajat Bose, a partner at Shardul Amarchand Mangaldas & Co., said. That, he said, would be on account of muted GST collections as the Covid-19 pandemic has impacted consumption.

The government may have to resort to market borrowing to fulfill its commitment towards compensating states for losses due to GST, Bose told BloombergQuint.

The government is exploring various options to adequately compensate states that involve raising money from the markets with a guarantee from the central government or by extending compensation levy beyond five years and continuing to compensate states with the collections.

No Compensation For Five States
Maharashtra received the highest compensation of Rs 19,233 crore in 2019-20 followed by Karnataka that got Rs 18,628 crore, the statement said. Meghalaya received the lowest compensation of Rs 157 crore. States such as Manipur, Mizoram, Sikkim, Nagaland and Arunachal Pradesh reported surplus collection and didn’t need compensation from the Centre.

Source: Bloomberg-Quint

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GST Compensation to States likely to get a Five-Year Extension

GST Compensation to States likely to get a Five-Year Extension

Witnessing a sharp decline in the GST revenue due to the pandemic and the following lockdown and disruptions in economic activities across the country, the States are likely to request the Centre for an extension in the GST compensation period, by up to five years beyond FY22.

The GST Council is expected to meet this month to discuss alternative compensation mechanisms, amid inadequate cess collections. Reports said that the States may write to the 15th Finance Commission, seeking the extension. They are likely to point out the challenge in meeting routine expenditure after 2022, in the absence of any compensation.

Coming out of the first GST Council taking place against the backdrop of COVID-19 pandemic, Finance Minister Nirmala Sitharaman said that the Council decided to meet again in July with single-point agenda to discuss compensation cess.
“If there is a need for borrowings to meet compensation to states, who are going to borrow. How we are going to pay for it…,” she said about next meeting of the Council, hinting that fall in revenues has become a big cause of concern for the Centre to meet its liability towards the states as per GST legislation.

Under GST law, states are guaranteed full compensation for any revenue loss for the first five years after the introduction of the goods and services tax (GST) in July 2017. The compensation is the gap between the actual revenue collected and projected revenue. The projected revenue is revenue growth of 14 per cent for states per year over the base year 2015-16.

As per the GST Act, full compensation to the states has to be paid for a period of five years till FY22 only through the compensation fund that gets its funds through the levy of GST compensation cess on few items. However, with the fund not getting enough collections since August 2019, GST compensation to states have been delayed with Centre now looking at getting GST Council nod for a mechanism to finance the compensation.

After February, when the Centre released GST compensation of Rs 19,950 crore for the months of October and November 2019, it has cleared dues for December, January and February only now.

The monthly compensation requirement for states in 2020-21 is being pegged at Rs 20,250 crore, government sources said, leaving a big gap between what needs to be paid and what is being collected. Even in FY21, monthly cess collections could be a low of Rs 7,000-8,000 crore or lower.

Source: TaxScan.

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Centre releases Rs 36,400-cr GST compensation to states for 3 months till February

Centre releases Rs 36,400-cr GST compensation to states for 3 months till February

The Centre has released Rs 36,400 crore as GST compensation to the states and union territories for three months till February 2020.

For the April-November 2019 period, the Centre had already released Rs 1,15,096 crore to compensate states and UTs on account of revenue loss due to implementation of the Goods and Services Tax (GST).

“Taking stock of the current situation due to COVID-19 where state governments need to undertake expenditure while their resources are adversely hit, the central government has released the GST compensation of Rs 36,400 crore to the states/UTs with legislature for the period from December 2019 to February 2020,” an official statement said.

The Centre had released Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18 as compensation for GST which was rolled out on July 1, 2017.

The cess collection in 2019-20, 2018-19 and 2017-18 fiscal was Rs 95,000 crore, Rs 95,081 crore and Rs 62,611 crore, respectively.

As the compensation requirement of the states was less than collection in the first two years (2017-18 and 2018-19) of GST rollout, Rs 47,271 crore GST compensation cess collected had remained unutilised in the compensation kitty.

Under the GST law, states were guaranteed to be paid for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

There were no differences between the Centre and states with regard to compensation payment in 2017-18, 2018-19, and in the first four months (April-July) of previous current fiscal (2019-20).

However, with revenue mop-up from compensation cess falling inadequate, the Centre held back fund transfer to states for revenue shortage beginning August 2019, following which states raised the issue.

Source: Economic-Times.

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GST compensation to states pending for Dec-March FY20

GST compensation to states pending for Dec-March FY20

Finance Minister Nirmala Sitharaman on Sunday said GST compensation is due to all the states for the four-month period of December-March. “We are periodically talking about it. GST dues are very clearly explained in the GST Council. It is not for selective states… All states’ GST dues which we recognise for December, January, February, March have not been paid,” Sitharaman told reporters here.

Under GST law, states are guaranteed to be paid for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss. There were no differences between the Centre and states with regard to compensation payment in 2017-18, 2018-19 and in the first four months (April-July) of the previous fiscal (2019-20).

However, with revenue mop-up from compensation cess falling, the Centre held back fund transfer to states beginning August. Following this, states raised the issue with the Centre and in December 2019, Rs 35,298 crore was released as compensation for August-September, while Rs 34,053 crore was released in two instalments in February and April as compensation for October-November.

The Centre has, so far, released over Rs 2.45 lakh crore as GST compensation to states since the implementation of the new indirect tax regime on July 1, 2017. During July 2017-March 2018, Rs 48,785 crore was released, while between April 2018-March 2019, Rs 81,141 crore was paid to states.

For April-May and June-July last year, Rs 17,789 crore and Rs 27,956 crore were released. Further, Rs 35,298 crore was paid to states as compensation for August-September and Rs 34,053 crore for October-November 2019.

Source: Times-now-news

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