How to make up for the current revenue shortfall? There may be an uproar in GST Council tomorrow

The meeting of the GST Council on Thursday may be ruckus. Non-BJP ruled states are fully united to pressurize the Center to compensate the loss as promised, to compensate for the loss in revenue due to the implementation of the Goods and Services Tax (GST). News agency PTI quoted sources as saying that the 41st meeting of the GST Council will be held through video conferencing. The only agenda of the meeting is to compensate for the decrease in revenue of the states.

Options that may be considered in the meeting include debt from the market, increase in the rate of cess or increase in the number of items covered by the damage cess. Sources said that there is also a possibility of discussing the reverse duty structure on some products like textiles and slippers, ie the tax on raw materials at a higher rate than finished products.

The Kovid-19 crisis has increased the financial problems of the states. Before the meeting, the Chief Ministers of the states of the opposition parties met in a digital manner on Wednesday to formulate a common strategy in this matter. Congress President Sonia Gandhi has given a hint of what the atmosphere will be like in the GST Council meeting. In the meeting of the Chief Ministers of the opposition parties, he alleged on Wednesday that the refusal by the Narendra Modi government to give compensation related to the Goods and Services Tax is deceit with the states and the public.

The meeting was attended by Rajasthan Chief Minister Ashok Gehlot, Punjab Chief Minister Amarinder Singh, West Bengal Chief Minister Mamata Banerjee, Maharashtra Chief Minister Uddhav Thackeray, Jharkhand Chief Minister Hemant Soren, Chhattisgarh Chief Minister Bhupesh Baghel and Puducherry Chief Minister V Narayanasamy. Gandhi said in the meeting, “We have to work together and fight against the central government”.

States like Kerala, Punjab and Bihar have already said that if the revenue loses to the states for 5 years after the implementation of GST, the Center is morally bound to make up for it. Earlier, Attorney General KK Venugopal had said that the Center is not legally bound by the states to meet any shortfall in GST revenue. Sources had earlier said that following Venugopal’s opinion, states may have to consider taking loans from the market to compensate for the revenue. The GST Council will take a final decision in this regard.

In March, the central government had sought opinion from the Attorney General on the legality of taking loans from the market by the GST Council to meet the shortfall in the compensation fund. The Compensation Fund has been set up by levying additional charges on luxury and non-profit items. Through this, the states are compensated for any reduction in revenue by implementing GST.

The Attorney General Venugopal also opined that the council has to take a decision on meeting the shortfall in the GST Compensation Fund by providing sufficient funds. According to sources, the council has the option of rationalizing the reduction to GST rates, under indemnity cess and including commodities or raising the cess or allowing more lending to states. Later debt payments to states can be made from collections in the Indemnity Fund in the future.

Under the GST law, states have been guaranteed to meet any shortfall in revenue from the implementation of the Goods and Services Tax for the first 5 years. GST came into force from July 1, 2017. The shortfall is calculated by basing a 14 percent annual increase in the GST collections of states under the base year 2015-16. The GST Council has to consider how to make up for the loss of revenue in the current situation. The Center released Rs 1.65 lakh crore in GST compensation item in 2019-20. However, the amount received from collection of cess was only Rs 95,444 crore.

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