Tuesday 18 January 2022
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21 states accept Rs 97,000 crore borrowing proposal to meet GST shortfall

Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal are yet to respond to the GST Council proposal

As many as 21 states, mostly ruled by or parties which have supported it on various issues, have opted to borrow Rs 97,000 crore to meet the GST revenue shortfall in the current fiscal, sources said today.

The states and union territories that have intimated their decision to the union government are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh.

Sources in the Ministry of Finance said Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal were yet to respond to the GST Council proposal to decide their options.

The states that do not submit their borrowing options before the due GST Council meeting on 5 October will have to wait till June 2022 to get their compensation dues — subject to the condition that the GST Council extends the cess collection period beyond 2022, the sources said.

The GST Council, with full presence of states and union territories, needs only 20 states to pass any resolution — as per the GST Act — in the event that voting is required on any issue, the sources added.

In the current fiscal, the states are staring at a staggering Rs 2.35 lakh crore Goods and Services Tax (GST) revenue shortfall. Of this, as per the union government’s calculation, shortfall of about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is due to the impact of COVID-19 on states’ revenues.

The union government late last month gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

The sources said few more states were also to intimate their borrowing option in a day or two.

They added that Manipur, which had earlier opted to borrow Rs 2.35 lakh crore, had later changed its preference to the Rs 97,000 crore option.

The non- ruled states are at loggerheads with the union government over the issue of funding shortfall.

The chief ministers of six non- ruled states — West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu — have written to the union government opposing the options which require states to borrow to meet the shortfall.

While these states want the union government to borrow to meet the shortfall, the union government has argued that the revenue accruing from GST compensation cess goes to the states and the Centre cannot borrow on the security of the tax it does not own.

Under the GST structure, taxes are levied under 5%, 12%, 18% and 28% slabs.

On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods, and the proceeds from the same are used to compensate states for any revenue loss.

The Attorney General for India KK Venugopal had given his legal view on the compensation cess issue where he has opined that there is no obligation on the union government under the GST laws to compensate for the loss of revenue. He had opined that the GST Council has to find ways to meet any revenue shortfall arising out of GST implementation.

The payment of GST compensation to states became an issue after revenue from imposition of cess started dwindling since August 2019.

The union government had to dive into the excess cess amount collected during 2017-18 and 2018-19 to pay the states. It had released over Rs 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during the period 2019-20 was Rs 95,444 crore.

The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18. During April-July of current fiscal, the total compensation due to states stands at over Rs 1.51 lakh crore.

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