GST Severely Hit Due to COVID-19 Pandemic, 2 Options To Compensate States Mooted

New Delhi : The 41st meeting of the Goods and Services Tax (GST) Council has been held on 27th August i.e. today.  The meeting was attended by Anurag Thakur, Minister of State (MoS) for Finance, finance ministers of various states and Union Territories (UT) and senior officers from the Union Government and states. After a 5-hour-long meet, the GST Council held a video press conference with the media.

The Goods and Services Tax (GST) collection has been severely impacted due to coronavirus pandemic this year, said the Revenue Secretary after the GST Council meeting on Thursday. Claiming that an “Act of God” may result in contraction of the economy this fiscal, Finance Minister Nirmala Sitharaman, who chaired the 41st GST Council meeting, said the GST shortfall in FY21 was around Rs 2.35 lakh crore. Following a marathon five-hour meeting, Sitharaman said two options of compensating states were discussed.

Several decisions have been taken in this meeting led by Finance Minister Nirmala Sitharaman.“Compensation gap which has arisen this year (expected to be Rs 2.35 lakh crore). This shortfall is due to Covid-19 as well. Shortfall in compensation due to implementation of GST has been estimated to be Rs 97,000 crore,” Sitharaman said.

Two options to compensate states mooted –
The first option presented to the GST Council was to provide a special window to states, in consultation with RBI, to disburse the Rs 97,000 crore at a reasonable interest rate. “This money can then be repaid after 5 years from collection of cess,” Revenue secretary Ajay Bhushan Pandey.

The second option put forward was to meet the entire GST compensation gap of Rs 2,35,000 crore of this year by the states in consultation with RBI.

Sitharaman said states had requested a seven-day window to think over and get back to the Finance Ministry. “These options will be available only during the current year. The situation will be reviewed next year in April and decisions made on what is best for the country,” she said.

Under GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

No relief on two wheelers –
The Finance Minister did not say anything about the two-wheeler. FM Nirmala Sitharaman had given indications of GST reduction on two-wheelers. The Finance Minister had said that the two-wheeler is neither a luxury item nor does it fall under the category of detrimental goods, hence it is a matter of amending the GST rate.

She said that the matter of amendment of GST rate on two wheelers will be considered in the meeting of GST Council. At the same time last year, Hero MotoCorp, the country’s largest two-wheeler maker, also appealed to the government to cut GST. Currently, two-wheelers have a GST rate of 28 percent.

Highlights from the video conference :
– The Central government released more than Rs 1.65 lakh crore as GST compensation to states for FY 2019-20, including Rs 13,806 crore for March. Total amount of compensation released for 2019-20 is Rs 1.65 lakh crore, whereas cess amount collected was Rs 95,444 crore : Finance Secretary

– As mentioned by Finance Minister in GST Council meeting which was last held in March, legal views of the matter were sought from the Attorney General of India who said that GST compensation has to be paid for transition period from July 2017 to June 2022 : Finance Secretary Ajay Bhushan Pandey

– Attorney-General said that GST Compensation has to be paid for a transition period- from July 2017 to June 2022. Revenue has to be protected compensation gap to be met from cess fund, which in turn has to be funded from levy of cess: Ajay Bhushan Pandey, Finance Secretary on GST

– The Attorney General of India said that protected revenue has to be protected but compensation gap to be met from cess fund, which in turn has to be funded from levy of cess : Finance Secretary Ajay Bhushan Pandey

– Compensation gap which has arisen this year (expected to be Rs 2.35 lakh crores), is due to Covid-19 as well. The shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crores : Finance Secretary on 41st GST Council Meet

– AG’s clear opinion was that the compensation gap cannot be met from India’s consolidated fund. Option 1 presented to GST Council was to provide a special window to states, in consultation with RBI to provide Rs 97000 crores at a reasonable interest rate : Finance Secretary Ajay Pandey

– Option 2 presented to the GST Council was that the entire GST compensation gap of Rs 2,35,000 crore of this year can be met by states, in consultation with RBI. These options will be sent to states for a view within 7 Days and will apply for this fiscal year only: Finance Secretary

– States have asked us to give them 7 working days to think about the options. These options would be available only during the current year, the situation would be reviewed next year. We may have another GST meet soon: Finance Minister Nirmala Sithaaraman

– Once the arrangement is agreed upon by GST Council, we can proceed fast & clear these dues and also take care of the rest of the financial year. These options will be available only for this year; in April 2021, the Council will review and decide action for 5th year: FM Sitharaman

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