The Goods and Services Tax (GST) Council held on today to discuss on compensating states for revenue shortfall.
Why to compensate - The Goods and Services Tax (Compensation to States) Act, states were guaranteed payment for any loss of revenue (by taking base collection amount of 2015-16 with annual growth of 14%) in the first five years of GST implementation from July 1, 2017.
Period of fund release- The compensation payable to a State shall be provisionally calculated and released at the end of every two months period, and shall be finally calculated for every financial year after the receipt of final revenue figures, as audited by the Comptroller and Auditor-General of India.
How to fund guaranteed shortfall amount- As per the said Act, there shall be levied a cess on notified intra-State and inter-state supplies of goods or services or both for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of the goods and services tax .
Today's meeting summary
1. GST collection severely impacted due to pandemic. 2. GST shortfall in FY 21 at Rs. 2.35 lakh cr, of which only Rs. 97k Crore is due to implementation of GST, rest is due to pandemic. 3. Rs. 1.5 lakh crore due to states for April-July in GST compensation.
States were asserting pressure on centre to pay states from the consolidated fund of India.
Attorney general stand- The Attorney General's clear opinion was that the compensation gap cannot be met from the Consolidated Fund of India. He suggested that the compensation cess levy can be extended beyond 5 years, to meet the shortfall.
Two Option was offered to state - 1) To provide a special window to states, in consultation with RBI, to provide the ₹97,000 crore at a reasonable rate of interest, this money can then be repaid after 5 years from collection of cess. 2)Entire GST compensation gap of ₹2,35,000 crore of this year can be met by the states, in consultation with RBI.
Options discussed for meeting GST shortfall is only for current fiscal. GST Council will look at issue again in April next year
Outcome- States have asked us to give them 7 working days to think about the options.