The 42nd GST Council was unable to reach any consensus on compensation. Finance Minister Nirmala Sitharaman said nobody will be denied of their compensation right arising due to GST or COVID-19 pandemic. “We haven’t denied the right to compensation to states. No one had anticipated COVID. The Center is not sitting on money,” she said.
Thomas Isaac, Kerala Finance Minister, said 10 states have demanded that full compensation should be paid to the states during the current year as per clauses in the law and Center should borrow. He added that the decision was postponed to the next meeting which would be held on October 12. Ravishankar Raghvan, Tax Counsel Majmudar & Partners, believes the government already has a large borrowing requirement this year. He said any additional borrowing by the Center may influence the yields on the central government securities and have other macro-economic reprecussions. “The compensation issue between the Center and the States is likely to take some more time to be sorted out,” Raghvan said.
Sitharaman pointed out that some states have recommended reworking the 10 per cent based calculation. She said that they had decided to rework the calculation on seven per cent before the meeting. The Union Finance Minister added that the COVID effected gap will now be calculated beyond 1.10 lakh crore. Cess collected beyond the five years will pay for the amount beyond 1.10 lakh crore. The cess gets collected beyond five years will have a first charge on interest and second 50 per cent will go to paying the principal amount and the remaining 50 per cent will be given to the states.
Meanwhile, the revenue secretary Ajay Bhushan Pandey said the total shortfall in the collection of GST estimated at Rs 2.35 lakh crore. Out of the total shortfall, he said Rs 97,000 core is on account of GST shortfall, while the rest is due to COVID-19 pandemic. In the August meeting, the Center had presented the states with two options. The first was that a special window can be provided to the states, in consultation with the Reserve Bank of India, at a reasonable interest rate for borrowing of Rs 97,000 crore. The amount can be repaid after five years ending 2022 from cess collection. The second option is to borrow Rs 2.35 lakh crore shortfall from the special window.
