41st GST Council assembly: As fund crunch deepens, states likely to corner Centre over pending compensation – Business News , Firstpost

Ahead of the assembly immediately, chief ministers of Opposition-ruled states acquired collectively on Wednesday to devise a standard technique on the difficulty

New Delhi: The GST Council assembly on Thursday is likely to be a stormy affair as opposition-dominated states unite to stress the Centre to give them the promised compensation for lack of income arising from the implementation of GST.

The 41st assembly of the Goods and Services Tax (GST) Council, to be held through video conferencing, has only one agenda for dialogue – making up for the shortfall in states” revenues, sources mentioned.

The choices being explored are market borrowing, elevating cess charge or growing the variety of objects for levy of compensation cess.

Discussion on correction in inverted obligation on sure items like textiles and footwear can be likely, they mentioned.

The COVID-19 disaster has additional compounded the state’s fiscal issues.

In a tweet, Kerala Finance Minister Thomas Isaac mentioned:

Ahead of the assembly, chief ministers of Opposition-ruled states acquired collectively on Wednesday to devise a standard technique on the difficulty.

Congress President Sonia Gandhi set the tone for the GST Council assembly by calling the Centre”s refusal to reimburse the states as nothing in need of a betrayal of the folks by the Modi authorities.

West Bengal Chief Minister Mamata Banerjee, Maharashtra’s Uddhav Thackeray, Jharkhand’s Hemant Soren and chief ministers of Congress-ruled states Amarinder Singh, Ashok Gehlot, Bhupesh Baghel and V Narayanasamy attended the assembly.

“We have to work together and fight together against the Central government,” Gandhi mentioned on the assembly.

Banerjee had earlier said the scenario was “very serious” and opposition-dominated states ought to struggle unitedly.

States like Kerala, Punjab and Bihar have already mentioned that the Centre is morally sure to make good any shortfall in GST revenues to them within the first 5 years of implementation of the regime that subsumed 17 completely different central and state taxes.

Attorney General KK Venugopal had earlier opined that the Centre shouldn’t be legally sure to make up from its coffers any shortfall in GST revenues of states.

Sources had earlier indicated that following the AG”s opinion, states could now have to have a look at market borrowings to make good their respective income shortfall and the GST Council will take a ultimate name.

The Centre had in March sought views from the Attorney General on the legality of market borrowing to make good the shortfall within the compensation fund – a corpus created from levy of further tax on luxurious and sin items to compensate states for income shortfall arising from their taxes being subsumed into GST.

The AG in his view had additionally mentioned the GST Council has to determine on making good the shortfall within the GST compensation fund by offering the adequate quantity to be credited to the corpus.

Sources mentioned the choices earlier than the Council for assembly the shortfall may very well be to rationalise GST charges, cowl extra objects underneath the compensation cess or improve the cess, or advocate larger borrowing by states to be repaid by the long run assortment into the compensation fund.

Under GST regulation, states have been assured to be compensated bi-month-to-month for any lack of income within the first 5 years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual progress in GST collections by states over the bottom 12 months of 2015-16.

Under the GST construction, taxes are levied underneath 5, 12, 18 and 28 per cent slabs. On high of the very best tax slab, a cess is levied on luxurious, sin and demerit items and the proceeds from the identical are used to compensate states for any income loss.

The GST Council has to determine how to meet the shortfall in such circumstances and never the central authorities, sources added.

Any borrowing of the central authorities is upon the safety of the Consolidated Fund of India. Similarly, borrowing by a state authorities is upon the safety of the consolidated fund of the state. In both case, it could lead to elevated basic authorities debt burden and a better fiscal deficit.

The fee of GST compensation to states turned a problem after revenues from the imposition of cess began dwindling since August 2019. The Centre had to dive into the surplus cess quantity collected throughout 2017-18 and 2018-19.

The Centre had launched over Rs 1.65 lakh crore in 2019-20 as GST compensation. However, the quantity of cess collected throughout the 2019-20 was Rs 95,444 crore.

The compensation payout quantity was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.

AMRG & Associates Senior Partner Rajat Mohan mentioned coffers of the state are drying up and they’re pushing the central authorities for promised compensation for the lack of income arising on account of implementation of GST, although the loss is attributable to the pandemic.

“It is expected that the GST Council may pass on only few tax breaks for some items however, the focus would be more on increasing the tax revenues by increasing compensation cess for the sin goods,” Mohan added.

Managed oblique tax service supplier TMSL Founding Partner Jigar Doshi mentioned: “for a taxpayer, this council meeting may not be of significance unless the states and Centre don’t agree on a midpoint and additional levies or extension of cess or increase rate of cess is introduced at the discretion of respective states to resolve the budget constraints.”

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