Centre considers market borrowing for GST compensation to states | Business Standard News

Raising GST rates or rationalisation of tax slabs may be discussed by the GST Council in the next meeting to be scheduled early next month.

Compensating states has become tough with dwindling cess collection in the compensation fund amid a sharp fall in revenue due to the coronavirus pandemic.

The government is mulling ways to compensate states for the widening goods and services tax (GST) shortfall, which include borrowing from the market and extending the cess repayment period further. Raising GST rates or rationalisation of tax slabs may be discussed by the GST Council in the next meeting to be scheduled early next month. Compensating states has become tough with dwindling cess collection in the compensation fund amid a sharp fall in revenue due to the coronavirus pandemic. Compensation cess is levied on luxury and sin items such as aerated drinks, coal, pan masala, cigarettes and automobiles over the peak rate of 28 per cent. Under the law, if states’ GST revenue does not grow by at least 14 per cent over base year 2014-15, the Centre pays them the difference, after every two months, for the first five years of GST implementation. ALSO READ: Cash transfer is easier on paper than in reality: Expenditure Secy The option of bringing more items under the cess base by expanding the base of GST cess items would only yield Rs 2,000-Rs 3,000 crore a year. Hence, it has been put aside. Another option being considered is increasing the tax of items by shuffling the slab rates.chart“Raising GST rates by way of rationalising slabs remains an option. The council may discuss it with a fresh perspective amid the Covid pandemic. Borrowing from the market is another option, where the levy of cess could be extended beyond the stipulated five years. It can be used to repay the borrowed amount,” said a government official. However, any decision will have to be taken collectively by the council, he added. ALSO READ: MSMEs to get loans at 9.25% under Centre’s Rs 3-trillion package The GST Council, in the last meeting held in March, deliberated on whether it could go for borrowings if compensation cess collections fall short of the requirement of states. It will get opinion on various legal issues, such as who will give guarantee to the borrowing, how it will be repaid, how interest is to be paid and impact on fiscal responsibility and budget management Act.chartThe monthly GST compensation requirement is estimated at Rs 20,250 crore in 2020-21 against Rs 13,750 crore last year. Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On the pending GST compensation dues, finance minister Nirmala Sitharaman had said on Sunday, “We are periodically talking about it. GST dues are very clearly explained in the GST Council. It is not for selective states….

All states’ GST dues, which we recognise for December, January, February and March have not been paid.” Former finance minister late Arun Jaitley had, in the eighth GST Council meeting, suggested that in case the amount in the GST Compensation Fund fell short of the compensation payable in any bimonthly period, “the GST Council shall decide the mode of raising additional resources. These include borrowing from the market, which could be repaid by collection of cess in the sixth year or subsequent years.” ALSO READ: Govt to use RBI money to support struggling NBFCs for just three months However, states have been demanding that the compensation period be extended by another three years, beyond the stipulated 2021-22. This is due to their doubts about economic revival and buoyancy in revenue collection. It will lock their annual revenue growth at a minimum of 14 per cent irrespective of actual collections till 2024-25. Compensation is to be released to states on a bi-monthly basis. However, due to the falling GST compensation cess collection, the Centre held back fund transfer to states beginning August. Following this, states raised the matter with the Centre, and in December 2019, Rs 35,298 crore was released as compensation for August-September. Also, Rs 34,053 crore was released in two instalments in February and April as compensation for October-November. For 2019-20, the government has released 1.35 trillion GST to states and UTs while it collected only about Rs 95,000 crore. “Since the end of August 2019, we started realising the impending precarious position in paying GST compensation to states and UTs. This is because the compensation cess requirement was being double from the average monthly cess collection,” said a government official. ALSO READ: Coronavirus LIVE: More than 2 million have recovered from virus globally On an average, the monthly GST compensation cess requirement was to the tune of Rs 14,000 crore. But the cess was only in the range of Rs 7,000 crore to Rs 8,000 crore per month.

Govt releases Rs 15,340 crore of dues this year The Centre has released Rs 15,340 crore GST compensation to the states and Union territories so far in the current fiscal year, despite an insignificant revenue mop-up from goods and services tax owing to the nationwide lockdown, according to sources. For 2019-20 fiscal (up to November 2019), the Centre has released Rs 1.20 trillion GST compensation, higher than Rs 69,275 crore released in full 2018-19 and Rs 41,146 crore in 2017-18. GST was rolled out on July 1, 2017. The cess collection in 2019-20, 2018-19 and 2017-18 fiscal year was Rs 95,000 crore, Rs 95,081 crore and Rs 62,611 crore, respectively. As the compensation requirement of the states was less than collection in the first two years (2017-18 and 2018-19) of GST rollout, Rs 47,271 crore cess collect-ed had remained unutilised in the compensation kitty. In the current fiscal year, the Centre has released Rs 15,340 crore. PTI

via Centre considers market borrowing for GST compensation to states | Business Standard News

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