GST Dues: Is Bihar dividing the unity of States in GST Council

At least two state finance ministers, Kerala’s finance minister Thomas Issac and Punjab’s finance minister Manpreet Badal went public against the Centre’s proposal saying that it was being thrust upon them. However, according to people familiar with the matter, Bihar was a notable exception as the state showed its willingness from the start of meeting to borrow when other states pressed the Centre to borrow to pay the constitutionally guaranteed GST dues to them.

New Delhi: Several opposition States have resented the two-option formula proposed by the finance minister Nirmala Sitharaman in the GST Council’s meeting on Thursday, which requires them to borrow through a mechanism to be devised by the Reserve Bank to meet the shortfall in their revenue collection this year.

At least two state finance ministers, Kerala’s finance minister Thomas Issac and Punjab’s finance minister Manpreet Badal went public against the Centre’s proposal saying that it was being thrust upon them. However, according to people familiar with the matter, Bihar was a notable exception as the state showed its willingness from the start of meeting to borrow when other states pressed the Centre to borrow to pay the constitutionally guaranteed GST dues to them.

“Bihar agreed to borrow the money to meet the revenue shortfall whereas other States are against it,” a person familiar with the details of initial discussion in the GST Council meeting told ETV Bharat.

In her briefing, finance minister Nirmala Sitharaman also admitted that at the start of GST Council’s 41st meeting, which was organised virtually due to Covid-19 lockdown measures, States demanded that the Centre should borrow money to pay the constitutionally guaranteed GST dues.

“That the Centre should borrow were initial remarks made by some of the States, then the presentation happened about what is the actual deficit and so on. And then I gave the two options and both my option hinge on the fact that the borrowing will be by the States,” Nirmala Sitharaman said in the briefing.

Finance minister's statement confirms that there was a demand from the States that the Centre should borrow to pay GST compensation dues as per its constitutional and legal obligation.

“We explained to them why it would be preferable for the States to borrow and not the Centre. And also we said if the States are going to borrow, instead of a clamour in the market and crowding of the people, we would facilitate the process through the Central Bank,” she said.

Under the GST (Compensation to States) Act of 2017, it is binding on the Centre to compensate the States for any loss in their revenue collection during the transition period of five years.

The GST law also provides the mechanism for meeting any shortfall in the revenue collection of States as it authorises the Centre to collect GST Compensation Cess on sin and some other luxury goods for this purpose.

According to the revenue secretary Ajay Bhushan Pandey, the total GST compensation dues in the first four months of this financial year have been pegged at Rs 1.5 lakh crore. The Centre pays GST compensation dues on a bimonthly basis so this amount has already become due and according to the government’s own projection this year GST compensation payment requirement would be around Rs 3 lakh crores.

According to the government’s estimate, this year the GST Cess collection is expected to be just Rs 65,000 crores against the total shortfall of Rs 3 lakh crore in the revenue collection of States.

The Centre has put forward two options before the States, they could either collectively borrow Rs 97,000, the shortfall in their revenue collection that is attributed solely to implementation of the GST. Else, they could collectively borrow up to Rs 2.35 lakh crores to meet the entire shortfall in their revenue collection this year, a part of which is also attributable to adverse economic impact of Covid-19 global pandemic.

States have asked the Centre to give both the options in a detailed form to them and then they will come back to the Centre after seven working days with their views on it.

“We can have a small GST Council meeting then,” said the finance minister.

(Article by Krishnanand Tripathi)