43rd GST Council meeting was held today to discuss the contentious issue of compensation as the central government aims to reach a consensus with the non BJP ruled states.
This was the third time in a row that the GST Council discussed the issue of funding a shortfall of tax revenue of states. In its previous meeting held last week, the council had decided to extend the surcharge on taxes on luxury goods such as cars and tobacco products beyond June 2022 but failed to reach a consensus on ways to compensate states for loss of tax revenue.
Needless to mention here that the projected total compensation shortfall in the current FY stands at Rs 2.35 lakh crore. The Centre in August gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market and had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowings.
As many as 21 states had opted to borrow Rs 97,000 crore to meet the compensation shortfall. Further based upon demand by some States, the amount of Rs 97,000 crore under option 1 was increased to Rs 1.10 lakh crore in the last Council meet.
Key discussions in 43rd GST Council Meeting:
- FM stated in the press briefing that no unanimity is still there on cess borrowing issue and the stalemate still continues.
- The FM said that Centre explained the States why Centre cannot borrow for tiding over the cess shortfall. The reason stated was as Centre has already finalized its borrowing calendar , if it borrows now the G-Sec yields will jack up leading in increase in borrowing cost for all including private sector. It will have greater impact on Macros. However there will be less impact if States borrow the funds.
- FM stated that Centre will facilitate all the States end up paying fairly equitable rates on the cess borrowings made by them.
- FM stated that majority of States who had opted for Option 1 wanted early funds and stated that they should be allowed to make the cess borrowings.
- FM also said that can members stop other States from undergo borrowings what they want to do. GST Council may not force any State or borrow or not to borrow. Can States borrowings under Article 293 can be held back by Council in absence of consensus.
- It was stated by FM that still each State is welcomed to discuss the issue. It was stated by her that some opting States desired to do the meeting in regard to cess borrowing at the earliest.
- The extension in cess period will ensure repayment of cess borrowing by State with interest. The resources in Centre and States will be intact.
Thus we can say that now the opting 21 States have been given green signal for borrowing under Option-1 and Centre has put the ball in the court of dissenting States to mend their ways.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
