During the 41st GST council meeting on Thursday the Central Government had offered states two borrowing options to tide over their GST revenue shortfall.
“The prevailing economic situation is such that central revenues are under greater strain than GST revenue,” the government said, adding that there is a very large borrowing requirement that they face this year.
The government also gave an assurance that senior officials were ready to clarify the doubts of the States. The Ministry of Finance in a tweet said: “States have to communicate their preference within seven working days. A meeting of State Finance Secretaries with the Union Finance Secretary and Secretary (Expenditure) is scheduled to be held on 1st September, 2020 for clarifying issues, if any.”
The twin options for borrowings to tide over GST shortfall are as under:
Under Option 1; Borrowing towards shortfall arising out of GST implementation Rs 97,000 Cr under Article 29
The shortfall to be borrowed by states via a special window. The government will aim to keep costs at or close to G-secs. For Union Territories suitable arrangements to ensure the flow of resources under a special window to be made by the government. Interest under the special window to be paid from cess.
In this case, the State will not be required to service debt or repay it from any other source. Interest on borrowings under a special window will be paid from cess. States will also be given permission to borrow the final installment of 0.5 per cent.
Under Option 2: States can collectively borrow up to Rs 2.35 lakh crore (gross shortfall) from the market
This would also cover the revenue shortfall due to the coronavirus pandemic. Under this arrangement, the principal will be paid back by extending the levy of GST cess beyond 2022 but states will have to service the debt from their own resources. States will be granted higher borrowing permission to avail of this facility. However, only the amount of revenue shortfall that can be attributed to the tax reform, will be excluded from Finance Commission calculations.
In regard to the above two options, with a view to enabling the States to give their preference and views thereon within seven working days a paper of the GST compensation options has been prepared by the Centre wherein certain background information as furnished in the Council meeting is also appended.
After the scheme is finalized, the States can chose either Option 1 or Option 2 and accordingly their compensation, borrowing , repayment etc will be dealt as per their individual choice. The options are applicable only for the shortfall occurring in the current financial year.
For ready reference of our readers the paper on GST Compensation options as prepared by Central Government and provided to the States is as under:
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