GST Council Meeting: Stalemate Continues Between 10 Opposition Ruled States And Govt Over Borrowing Option To Meet Compensation Shortfall

The 42nd Goods and Services Tax (GST Council), which met under the chairmanship of Union Finance & Corporate Affairs Minister Nirmala Sitharaman through video conferencing on Monday(Oct 5), remained inconclusive on the vexatious issue of borrowing to meet the compensation shortfall. The next meeting is now scheduled for October 12.

While 20-21 states opted for the Reserve Bank of India (RBI) window of Rs 1.10-lakh crore(revised from earlier Rs 97,000 crore), around 10 states (mostly opposition ruled) continue to insisting that the Centre borrow and disburse the money.

On August 27, the Centre proposed two options to States/Union Territories (UTs) for borrowing to meet the compensation shortfall during the current fiscal year. Under option one, States/UTs could borrow ₹97,000 crore (the shortfall solely on account of GST implementation) via a special window facilitated by the RBI. Under option 2, the states/UTs could from the open market the ₹2.35-lakh crore (shortfall on account of GST implementation issue plus the coronavirus pandemic).

During the press conference that was held after the council meeting ended, the Finance Minister said that based on the suggestions given by State officials,the borrowing amount has been enhanced to ₹1.10-lakh crore by lowering the assumed growth rate to 7 per cent.

GST Council recommended the levy of Compensation Cess to be extended beyond the transition period of five years i.e. beyond June, 2022, for such period as may be required to meet the revenue gap.

Centre will also be releasing compensation of ₹ 20,000 crore to States towards loss of revenue during 2020-21 and an amount of about ₹ 25,000 crore towards IGST of 2017-18 by next week.

To reduce the compliance burden particularly on the small taxpayers having aggregate annual turnover under Rs. 5 cr., the Council’s earlier recommendation of allowing filing of returns on a quarterly basis with monthly payments by such taxpayers to be implemented will be implemented beginning Jan 1,2021 . The quarterly taxpayers would, for the first two months of the quarter, have an option to pay 35% of the net cash tax liability of the last quarter using an auto generated challan.

In a bid to encourage, domestic launching of satellites particularly by young start-ups, the GST council recommended that the satellite launch services supplied by ISRO, Antrix Corporation Ltd. and NSIL will be exempted from the purview of the tax.