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Business News/ News / India/  GST Council decides to extend compensation cess beyond June 2022: Sitharaman
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GST Council decides to extend compensation cess beyond June 2022: Sitharaman

'Nobody is going to be denied the compensation which has arisen out of implementation of GST and COVID impact. A discussion with states is on,' says Sitharaman
  • Sitharaman adds that compensation cess collected this year amounting to about ₹20,000 crore will get disbursed to all states by tonight
  • Finance minister Nirmala Sitharaman. (PTI)Premium
    Finance minister Nirmala Sitharaman. (PTI)

    Union Finance Minister Nirmala Sitharaman during the 42nd Goods and Services Tax (GST) Council meeting today decided to extend compensation cess beyond 2022.

    "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. Further details to be worked out," the ministry said in a statement.

    While as many as 21 states, mostly ruled by Bhartiya Janata Party or parties which have supported it on issues, had till mid-September opted to borrow 97,000 crore to meet the GST revenue shortfall in the current fiscal, most opposition-led states like West Bengal, Punjab and Kerala continue to demand that the centre should borrow instead of the states and another meeting will take place next week.

    "10 states demand that full compensation should be paid to the states during the current year as per clauses in the law and centre should borrow. Decision was postponed to the next meeting on 12th of October," Kerala finance minister Thomas Isaac said.

    "Nobody is going to be denied the compensation which has arisen out of implementation of GST and COVID impact. A discussion with States is on. Around 20 States have written that they opt for Option 1," added Sitharaman.

    Moreover, the finance minster added that compensation cess collected this year amounting to about 20,000 crore will get disbursed to all states by tonight.

    Briefing reporters after the GST meeting, she said the GST Council has taken up the long-pending issue of Integrated Goods and Services Tax.

    Earlier there was no formula for devolution of Integrated Goods and Services Tax (IGST), which had resulted in several anomalies in its distribution, she said.

    The minister said that compensation cess collected this year so far, amounting to about Rs. 20,000 crore, will get disbursed to all states tonight.

    A committee under the chairmanship of Bihar Deputy Chief Minister Sushil Modi has been formed to settle the issue of IGST.

    In the current fiscal, the states are staring at a staggering 2.35 lakh crore Goods and Services Tax (GST) revenue shortfall.

    Of this, as per Centre's calculation, about 97,000 crore is on account of GST implementation and rest 1.38 lakh crore is the impact of COVID-19 on states' revenues.

    The Centre in August gave two options to the states to borrow either 97,000 crore from a special window facilitated by the RBI or 2.35 lakh crore from market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

    The total shortfall in collection of GST estimated at 2.35 lakh crore, said revenue secretary Ajay Bhushan Pandey. Out of the total shortfall, 97,000 crore is on account of GST shortfall, while the rest is due Covid-19 pandemic. During the last meeting in August, the Centre presented two options before states to meet the GST shortfall.

    The two options before states were 1) A special window can be provided to the states, in consultation with the Reserve Bank of India, at a reasonable interest rate for borrowing of 97,000 crore. The amount can be repaid after five years (of GST implementation) ending 2022 from cess collection. 2) The second option is to borrow the entire 2.35 lakh crore shortfall under the special window.

    So far, Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh have opted for the first borrowing option.

    The payment of GST compensation to states became an issue after revenues from the imposition of cess started dwindling since August 2019.

    The Centre had to dive into the excess cess amount collected during 2017-18 and 2018-19.

    The Centre had released over 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during 2019-20 was 95,444 crore.

    The compensation payout amount was 69,275 crore in 2018-19 and 41,146 crore in 2017-18.

    During April-July of the current fiscal, the total compensation due to states stand at over 1.51 lakh crore.

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    Published: 05 Oct 2020, 08:01 PM IST
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