Page 36 - GSTL_3rd September 2020_Vol 40_Part 1

J18 GST LAW TIMES [ Vol. 40
“Why should we differentiate between pre-COVID and post-COVID? The dis-
cussions went on about compensation and the fund, and these options were pre-
sented at the end of the meeting,” Punjab Finance Minister Manpreet Singh Badal
said, adding that the borrowing would translate into “mortgaging of the future
to live for the present”.
However, BJP leader and Bihar Deputy Chief Minister Sushil Kumar
Modi welcomed the options. “Both the proposals are welcome-States will not be
burdened as interest and principal will be paid from the cess fund. States wanted
that borrowing by the Centre would be better, but now even if States have to
borrow, there will be no burden on the exchequer. They don’t have to do repay-
ment or interest payment and hence, State exchequer won’t get burdened,” he
said. According to Sitharaman, the borrowing would be under a special dispen-
sation to be facilitated by the Central Government at G-sec linked rates. The Un-
ion Finance Minister said the ` 97,000 crore option comes with the additional in-
centive of 0.5 per cent relaxation in FRBM for States in the current fiscal. This, she
said, would be freed from conditions announced earlier as part of the pandemic
package linked to the implementation of reform measures such as universalisa-
tion of ‘One Nation One Ration card’, ease of doing business, power distribution
and augmentation of urban local body revenues. The Cess collected after June,
2022, which is the end of the compensation period as specified in GST-related
laws, would be used for interest payment.
There was some lack of clarity regarding the differentiating features of
the two options, with many States not aware of the pros and cons, and details re-
garding the FRBM clause. No details were released by the Finance Ministry.
After the meeting, Finance Secretary Ajay Bhushan Pandey said that in
the absence of the pandemic, revenue shortfall due to implementation of GST
alone would be ` 97,000 crore considering the gap between States’ protected rev-
enue growth of 14 per cent year-on-year and GST mop-up growth in a normal
year at a 10 per cent nominal GDP growth. He said that ` 2.35 lakh crore is the
expected shortfall in States’ entitlement due largely to the pandemic-induced
economic slowdown and GST implementation issues. The gap between protected
revenue and States’ GST earning this fiscal is expected to be ` 3 lakh crore, a part
of which would be met with ` 65,000 crore of estimated Cess collection, leaving a
gap of ` 2.35 lakh crore at the end of the year. “One of the options for bridging
the gap given by the Attorney General was to extend the compensation cess levy
beyond five years to meet the shortfall suffered during this five year-period be-
tween July, 2017 and June, 2022,” Pandey said.
Even if States choose the first option, their compensation entitlement for
the next year would be protected but paid from the Cess collected after the five
years of GST have lapsed. The borrowing plan is valid for this year only and the
Council would review the revenue position next fiscal to decide on payment.
“We shall facilitate talking to the reserve bank and getting it at a G-sec
linked (proportionate number of years) rate for all States so that each State
doesn’t have to go running for the loan and face different situations,” Sitharaman
said.
She said the Centre will facilitate the process so that all States can avail
loans at roughly the same interest rate.
[Based on The Indian Express, New Delhi, dated 28-8-2020]

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