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Exclusive | States still in no mood to relent on GST compensation mess.


Date: 03-09-2020
Subject: Exclusive | States still in no mood to relent on GST compensation mess
In the Centre-states tug-of-war over the Goods and Services Tax (GST) compensation issue, states aren't willing to accept either of the two options offered by the Centre.

"Senior state government officials had a meeting with finance ministry officials. We were explained the two options. But the issue is the Centre is only explaining their position and not listening to why neither is feasible to us. If they want us to borrow, then we need FRBM (Fiscal Responsibility and Budget Management) limits to be adequately raised," a senior state government official told Moneycontrol.

Another senior state government official said Centre is unwilling to consider the option of Centre borrowing the whole amount. "How can states borrow without their FRBM limits being raised? And it can't be raised as a token percentage, we need the limit to be sufficiently raised. Which the Centre will not pay heed to," the official said.

On September 1, senior officials of the central government met finance secretaries of the states to clarify the two borrowing options given to states to make up for the GST shortfall.

The finance ministry conveyed to the states that funds borrowed would be credited to states and not to the compensation kitty. Under the first option, repayment will be done through the compensation kitty. And in case the states agree to the second option, the principal would be repaid from the cess kitty but interest has to be borne by the states.

At the 41st GST Council meeting on August 27, Finance Minister Nirmala Sitharaman gave states two options under which they could borrow from the market to make up for the estimated deficit of Rs 2.35 lakh crore in FY21, created due to the economic losses caused by COVID-19.

States could borrow up to Rs 97,000 crore, which is a shortfall arising out of GST implementation or the entire Rs 2.35 lakh crore, which accounts for the Covid-19 situation.

In case the first option is chosen, states would have to borrow Rs 97,000 crore through issue of debt under a Special Window coordinated by the Ministry of Finance. In case of the second option, the entire shortfall of Rs 2.35 lakh crore may be borrowed by states through the issue of market debt.

"The spirit of GST is cooperative federalism. The centre can't force us to borrow when it is legally bound to compensate us. Act of God or not," one of the sources quoted said.

When GST was implemented in 2017, the Centre had promised to compensate states for any revenue loss for five years from a pool created by levying cess over and above the GST on luxury and sin goods. This pool generated a surplus in the first two years and had a deficit in FY20 as well as in FY21.

Source:-moneycontrol.com


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