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GST: Thirteen states agree to Centre's loan offer to meet revenue shortfall

After the Centre expressed its inability to compensate for the shortfall in their revenue collection in the financial year 2020-2021, as many as 13 states have agreed to exercise the two borrowing options offered by the Centre to meet the shortfall in their revenue collection in this fiscal. While 12 states have preferred the first borrowing option, only one state Manipur has opted for the second option under which a state can borrow the entire gap in its revenue collection, writes Deputy News Editor of ETV Bharat, Krishnanand Tripathi.

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Published : Sep 13, 2020, 10:55 PM IST

Updated : Sep 14, 2020, 12:01 PM IST

New Delhi:In a big relief for Prime Minister Narendra Modi’s government, as many as 12 states have opted to borrow an amount equal to the shortfall expected in their revenue collection in this fiscal due to implementation of a common nationwide goods and services tax (GST) in July 2017.

These states have chosen to borrow the loan through a special window created by the Reserve Bank of India after the Union government expressed its inability to pay them the constitutionally guaranteed GST compensation dues in this fiscal.

In the 41st meeting of the GST Council held on August 27, the Centre expressed its inability to compensate for the shortfall in their revenue collection in the financial year 2020-2021 (April-March period) as both GST and GST Cess collection have been severely hit due to a slowing economy and adverse impact of COVID-19.

The GST Council, having the representation of both the Centre and states, is the apex body administering a nationwide common goods and services tax.

According to the sources in the ministry of finance, so far 13 states have agreed to exercise the two borrowing options offered by the Centre to meet any shortfall in their revenue collection in this fiscal, which will be repaid from the GST compensation collected beyond the transition period of five years.

“The 12 states which have preferred to opt for borrowing option one are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh, Uttarakhand and Odisha,” a source told ETV Bharat.

Of the 13 states that have responded to the Centre’s two proposals, only one state Manipur has opted for the second option under which a state can borrow the entire gap in its revenue collection (attributable to both GST and COVID-19), but it will have to pay the interest while the principal amount will be paid from the Cess collection.

The Centre has estimated that this year there will be a shortfall of Rs 3 lakh crore in the revenue collection of states due to a combination of several factors, including the adverse economic impact of the outbreak of the COVID-19 global pandemic and implementation of the GST 3 years ago.

Also Read:GST compensation: Govt willing to raise unconditional 0.5% borrowing limit

The Centre hopes to pay Rs 70,000 crore from GST cess collection but it will leave a gap of Rs 2.3 lakh crore.

According to finance ministry estimates, out of this Rs 2.3 lakh crore shortfall in the revenue collection of States, only Rs 97,000 crore is attributable to the implementation of the GST in July 2017.

The remaining amount of nearly Rs 1.33 lakh crore will be due to the outbreak of Covid-19 pandemic, which is expected to cause a loss of $9 trillion to the world economy.

“Six more states, Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh are expected to give their option in a day or two,” a source told ETV Bharat.

Sources also told ETV Bharat that some other states have submitted their views to finance minister Nirmala Sitharaman who heads the GST Council. These states have not opted for either of the two options offered by the Centre.

Opposition states like Kerala and Punjab have publicly criticised the two borrowing options offered by the Centre accusing it of reneging on a sovereign promise to compensate States for the loss in their revenue collection for a transition period of five years following the implementation of the GST in July 2017.

The Centre has promised to compensate states for any loss in their revenue collection for five years following the implementation of GST while assuming a 14% compound growth per year by taking their revenue collection in FY 2015-16.

For the first two years, the GST Cess collection was much more than the requirement to pay GST compensation to states.

However, in the third year (2019-20), the Centre was required to pay over Rs 1.65 lakh crore GST dues against the collection of Rs 95,444 crores which it managed by utilising the surplus of previous two years and also by transferring Rs 33,412 crores from Consolidated Fund of India, which was a balance of IGST pertaining to FY 2017-18.

This year, the situation worsened as the Centre is not able to pay the outstanding amount of Rs 1.5 lakh crore to States which has become due in the first four months of this fiscal.

The Centre and states are expected to discuss the issue in the next two-three days.

Also Read:GST compensation: Karnataka opts for first among two options offered by Centre

Last Updated : Sep 14, 2020, 12:01 PM IST

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