Page 35 - GSTL_3rd September 2020_Vol 40_Part 1

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GST compensation shortfall — GST dues stuck, States told
to borrow via RBI

Referring to the COVID pandemic as an ‘Act of God’ that will result in a
contraction of the economy in the current fiscal, Finance Minister Nirmala Sitha-
raman said that in the 41st Meeting of the Goods and Services Tax (GST) Council
on 27-8-2020, States were presented with two options to resolve the contentious
issue of compensation shortfall estimated to be ` 2.35 lakh crore.
State Finance Ministers, who in the meeting insisted on the borrowing to
be done by the Centre to make up for revenue shortfall, later said there was lack
of clarity regarding the proposals that were brought towards the end of the five-
hour meeting. They also termed the move to make a distinction in the revenue
shortfall on account of GST implementation and the pandemic as “unconstitu-
tional”.
The first option for States includes a special window to be provided, in
consultation with the RBI, for borrowing the projected GST shortfall of ` 97,000
crore and an amount that can be repaid after five years of GST implementation
ending 2022 from the Compensation Cess fund.
The second option is to borrow the entire projected shortfall of ` 2.35
lakh crore - both on account of faltering GST collections and the expected short-
fall due to the pandemic - under a special borrowing window facilitated by the
RBI.
The States have been given a week’s time to get back with their views.
Referring to the distinction between genuine GST compensation and
compensation because of COVID, Kerala Finance Minister Thomas Isaac said :
‘They are enforcing a cut in compensation and bringing in an unconstitutional
distinction… There were serious differences of opinion, I challenged the distinc-
tions. I am willing to consider borrowing by States but full compensation must
be paid,” he told The Indian Express.
Isaac said the States’ FRBM limit should be raised at least by 1.5 percent-
age points if the entire ` 2.35 lakh crore has to be borrowed. “We will not accept
any option if the States are not compensated. The entire borrowing must be ac-
commodated with an increase in the borrowing limit,” he said.
During the meeting, which began with discussions on the legal opinion
on borrowing and the compensation fund, most State Ministers pressed for bor-
rowing by the Centre to bridge the revenue gap. “All States wanted the Centre to
borrow, except Assam, Goa. BJP-ruled States put it mildly, other States put it vo-
ciferously. Then, the Centre came with this proposition where States have to
make the sacrifice, which is not acceptable,” another State Finance Minister said.
GST LAW TIMES  3rd September 2020  51