IT Correspondent
New Delhi, Oct 6:
GST compensation due to state governments for this year – around Rs. 20,000 crore – will be released, Union Finance Minister Nirmala Sitharaman said on Monday night after a marathon meeting of the 42 nd GST Council. However since the meeting remained the next meeting has been scheduled for October 12.
The Finance Minister said that the GST cess would have to be extended beyond the five year period initially agreed upon between the centre and states and the GST Council agreed to extend the cess for another five years. The surcharge on luxury products, which is part of the GST, is to expire in 2022.
Besides, in a relief to small taxpayers, the Council decided that the small taxpayers will be required to file returns quarterly. The number of returns of small taxpayers will also be reduced from 24 to 8 from January 2021.
The Council, however, failed to provide a consensus on mode of repayment of total compensation – around Rs. 97,000 crore (rising to Rs. 2.35 lakh crore including COVID-19 related relief). A decision on this matter has been deferred till the next meeting on October 12.
GST compensation has emerged as a sore point with state and union territory governments this year, particularly with the adverse economic impact of the Covid pandemic and lockdown. The centre is finding it difficult to pay states compensation – due if a state’s revenue grows slower than 14 per cent – because states have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis.
The Congress had called the delay in paying GST compensation a “sovereign default” and going back on constitutional guarantees that were the reason states came on board with the GST regime. Several opposition-ruled states, including Bengal and Kerala, have been similarly upset.
Sitharaman said “ There are some changes that have been made in Option 1. Some states have recommended reworking the 10% based calculation. Before the meeting itself, we had decided to rework the calculation on 7 percent. We decided before the meeting that base calculation for GST borrowing option 1 will be brought down to 7 percent from 10 percent”.
It may be recalled that after a meeting of the GST Council earlier this year, state and UT governments were asked to borrow – either the full amount of Rs.2.35 lakh crore (which included Covid relief) or Rs. 97,000 crore (which was only GST compensation).
So far 21 states have agreed to borrow, with 10 opposition-ruled states refusing to do so.
These states, which include Kerala and Bengal, have written to Prime Minister Narendra Modi, reminding him of his government’s “constitutional” responsibilities in this stand-off.
The states opposing borrowing as a method of repayment have also pointed out that this places an extra burden on their finances at an already difficult time. The centre, they said, could take up this burden and pay back the loan by carrying forward GST cess collection past 2022.
