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Business News/ Politics / News/  Consensus over compensation issue may still elude GST Council
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Consensus over compensation issue may still elude GST Council

Oppn-ruled states have rejected a central government proposal to borrow and meet revenue shortfall
  • The Council has to take a call on how to make up for the GST revenue shortfall of states
  • On Monday, the central government clarified that it will honour the entire compensation owed to states.ptiPremium
    On Monday, the central government clarified that it will honour the entire compensation owed to states.pti

    The Goods and Services Tax (GST) Council is divided along political lines with just a few days to go for the start of the monsoon session of Parliament, after most Opposition-ruled state governments turned down the borrowing options proposed by the Union government at the meeting of the Council last month.

    Opposition-ruled states have rejected the suggestion that they borrow to meet the shortfall temporarily, though it can eventually be paid back by extending the GST cess. Under the first option, states could collectively borrow 97,000 crore, their revenue gap directly attributable to GST implementation.

    The second option allows a borrowing of 2.35 trillion, which also includes the revenue lost during the pandemic-induced lockdown. However, under this, the proposal circulated to states suggest that only the principal will be paid back by way of revenue from GST cess and states will have to pay the interest.

    Most state governments under the National Democratic Alliance, including those of the Bharatiya Janata Party, too, have reached out to the Union government as they are facing a financial crunch.

    “It is true that most state governments are facing financial crunch but the GST Council is not the place to make it a political contest. The Council is all about consensus and party politics should not be introduced in the Council. When the lockdown happened in April this year, the revenue loss for Bihar in comparison to last year was 81.6%, while it was 42.1% in May last year. However, some economic activity started in June and the loss of revenue was 15.12% in comparison to last year, and it was 8.34% in July. So, all states are facing financial issues," said a senior cabinet minister in the Bihar government.

    After states such as Delhi, Punjab, Kerala, West Bengal and Chhattisgarh turned down the proposals, the central government clarified on Monday that it will honour the entire compensation owed to states on account of the shortfall in GST collections.

    “It will be difficult to gain consensus. The GST Council will get degenerated if you take it to majoritarianism because its basic spirit is consensus. The Council was formed on the understanding that every state would have equal rights to safeguard the federal structure. Taxes were subsumed to ensure this. You gave the same voting rights to all states irrespective of population size," said T.S. Singh Deo, Chhattisgarh commercial tax minister in charge of GST.

    A consensus at the next GST Council will depend on how far the states will push the envelope and the extent to which the Centre is willing to sweeten the proposals to help states meet their GST shortfall. “The right of states to tax is gone. States such as Chhattisgarh are losing out despite contributing to the national kitty and now we are told to take loans. Today if they are taking a decision like this, tomorrow it could be on anything on the basis of majority. So what is the point of GST Council? Irrespective of political parties, the focus must be only on upholding constitutional guarantee," Deo added.

    The Council has to take a call on how to make up for the GST revenue shortfall of states, an obligation of the central government under the Constitution and the GST (Compensation to States) Act.

    However, the sharp drop in revenue receipts of the Centre and states have resulted in differences of opinion on how to find the resources.

    gyan.v@livemint.com

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    Published: 10 Sep 2020, 07:59 AM IST
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