Twenty-one states have given their borrowing option proposed by the goods and services tax council to meet shortfall in compensation from the centre amid the coronavirus pandemic, sources have said. These 21 states went with “option 1”, which allows them to borrow the tax collection shortfall due to the switch to the GST, estimated at Rs 97,000 crore, by issuing debt under a special window coordinated by the Finance Ministry.
Puducherry is the only Congress-ruled place that has taken a decision on choosing an option, sources said, adding no other Congress or opposition-ruled states have announced their decision.
The “option 2” allows states to borrow the entire compensation shortfall of Rs 2.35 lakh crore, including the shortfall due to coronavirus crisis, by issuing market debt.
If these remaining states do not give their choices before another scheduled meet of the GST Council on October 5, then they will have to wait till June 2022 to get their dues, but on the condition that the GST Council extends the cess collection period beyond 2022. The GST Council is the highest decision-making body of the national tax introduced in July 2017.
“It may be noted that the 41st GST Council meeting took place in the backdrop of the opinion of the Attorney General for India on the compensation cess issue where he has opined that there is no obligation on the centre under the GST laws to compensate for the loss of revenue,” a person with direct knowledge of the matter said, asking not to be named.
“It is the GST Council and not the central government which has to find ways, according to the Attorney General, to meet the compensation shortfall. Also, a state can borrow, even on the strength of future receipts from the compensation fund,” the person said.
The Congress had called the delay in paying GST compensation a “sovereign default” and going back on constitutional guarantees that had been the reason the states had come on board with the GST plan.
The centre is hard-pressed on paying GST dues to states that have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis. Punjab, for example, has said it may see a revenue deficit of Rs 25,000 crore this year.
GST collections including compensation cess to the states had been falling short of targets even before the coronavirus pandemic, making it difficult for the centre to compensate the states.