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GST Council meeting: Decision on mode of compensation extension unlikely today

September 19, 2021 12:30 PM

GST Council meeting: Decision on mode of compensation extension unlikely today
The GST Council meeting( Goods and Service Tax ) is unlikely to reach a final decision on the ways in which to extend compensation to states beyond June 2022,

The GST Council meeting( Goods and Service Tax ) is unlikely to reach a final decision on the ways in which to extend compensation to states beyond June 2022,

It is understood that the center has given a presentation to states and laid out options on how the compensation can be extended beyond its end-date next year. However, the states are likely to be given time to decide which option suits them best, said an official who is aware of the deliberations in the GST Council meeting.

The meeting of the all-powerful federal body, being chaired by Finance Minister Nirmala Sitharaman and being attended by all but seven state Finance Ministers, is currently taking place in Lucknow. Sitharaman will address a press conference after 6.30 PM.

Also Read :Fully Loaded agenda for first in-person GST Council meeting in nearly two years

It is also learnt that the center is presenting to states some revenue enhancement measures which will enable them to depend less on the shortfall compensation from the center.

While the center had in-principle agreed to extend the compensation cess and the shortfall due to states last year itself, the modalities and details are being the Lucknow meeting.

When the GST came into being, states had agreed to join the new tax regime provided they were compensated for any revenue loss in the first five years from July 1, 2017 to June 2022.

Section 18 of the Constitution (101 amendment) Act, 2016 and Section 7 of GST (Compensation to State) Act, 2017 permits that the loss of revenue will be compensated to states at the end of every two months for five years. The shortfall is calculated assuming a 14 percent annual growth in GST revenue over the base year of 2015-16.

As per the center’s perspective, the pandemic has hit the finances of the center as much as the states and hence to compensate states at an assumed rate of 14 percent GST growth, something which was decided pre-COVID, may no longer be possible.

For the current 2021-22 financial year, the center has already released RS75,000 crore to the states and union territories to compensate them for the shortfall in GST revenue.

This is not the first time that states have been presented options on compensation due to GST shortfall.

In the GST Council meeting on August 27, 2020, in light of a massive hit to revenues due to the COVID-19 pandemic, Sitharaman had proposed two options to states – to either borrow RS 1.1 lakh crore (on account of GST implementation) through a special window facilitated by the RBI, or to borrow the complete shortfall of RS 2.35 lakh crore (including RS 1.8 lakh crore due to COVID) from the market. The states were given time, and most had chosen the first option.

The states whose Finance Ministers are not attending the current meeting in Lucknow are Gujarat, Maharashtra, Tamil Nadu, Karnataka, Chhattisgarh, Meghalaya and Mizoram.

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