The Centre is facing a major decline in tax receipts and has raised its borrowings by about 54% to ₹12 trillion for this fiscal. It cannot meet the shortfall in the compensation requirement of ₹2.35 trillion from its own resources
NEW DELHI: The 42nd meeting of federal tax body, the Goods and Services Tax (GST) Council, is underway via videoconference, mainly to discuss how to bridge the shortfall in states’ tax receipts. Mint takes a look at the key issues on the table.
The Council will attempt to arrive at a decision on letting states borrow over and above their already enhanced borrowing limits to bridge the shortfall in their GST receipts. The options are either for meeting the revenue deficit arising from the 2017 indirect tax reform or for bridging their entire GST revenue deficit which covers the impact of the pandemic, under different terms. Dissenting states like Kerala, Punjab, West Bengal and Delhi are expected to propose other options.
What do dissenting states want?
States opposed to the borrowing options proposed at the last Council meeting in August have rejected the distinction between revenue losses due to the 2017 tax reform and what is caused by the pandemic. They expect the Centre to borrow and compensate them. Kerala, Punjab and Delhi have asked for a dispute resolution mechanism to handle such differences. However, such a mechanism which is provided for in the Constitution through the Constitution (One hundred and first) Amendment of 2016, is yet to be set up.
Is the central government in a position to borrow and make good states’ tax shortfall?
The Centre is facing a major decline in tax receipts and has raised its borrowings by about 54% to ₹12 trillion for this fiscal. It cannot meet the shortfall in the compensation requirement of ₹2.35 trillion from its own resources as its gross tax revenue for the April-August was only ₹5 trillion. The only option is for the Centre and states to work out a formula for borrowing.
The gap in GST revenue can be bridged either by borrowing or by raising taxes on items like petroleum products and liquor that are outside GST. However, there may be a limit to these alternate tax measures, especially for auto fuel. The additional borrowing to be made will be serviced by extending the GST cess on items like cars, tobacco and carbonated drinks beyond 2022. Consumers have to bear the cess for a longer period.
What are other issues on the table?
The Council is expected to consider suggestions of a ministerial panel for disbursing integrated GST due to states for FY18 as well as a proposal for exempting satellite launch services by ISRO, Antrix Corp., and New Space India Ltd. from GST, BloombergQuint reported on Sunday.
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