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GST Council to discuss issue of pending dues at meeting today

The 42nd meeting of the GST Council will see a group of dissenting states, which publicly rejected the Centre’s borrowing proposals, suggesting terms for further discussions on the issue. (PTI)Premium
The 42nd meeting of the GST Council will see a group of dissenting states, which publicly rejected the Centre’s borrowing proposals, suggesting terms for further discussions on the issue. (PTI)

  • The meeting will consider the two borrowing options offered earlier to states to meet their GST shortfall
  • The Centre is expected to place before the Council the legal formalities for facilitating the two borrowing options offered

The Goods and Services Tax (GST) Council will meet on Monday amid serious differences between the Centre and some Opposition-ruled states over GST compensation, an issue that has brought to the fore the severe fiscal strain at national and state levels.

At its 42nd meeting that will be conducted via videoconference, the federal tax body will consider the two borrowing options offered earlier to states to meet their shortfall in GST collections. Also, a group of dissenting states including Kerala, West Bengal and Punjab which publicly rejected the proposals will suggest terms for further discussions on the issue.

Kerala finance minister Thomas Isaac said in an interview on Sunday that if the Centre presses to get the borrowing options cleared by vote and refuses to set up a dispute resolution mechanism, Kerala will move the Supreme Court.

The Centre is expected to place before the Council the legal formalities for facilitating the two borrowing options offered, which entail extending the GST cess on luxury and sin goods beyond 2022. Both the borrowing options involve raising debt by states on different terms. Already 21 states have opted for borrowing, which makes it possible for the Centre to get it passed by a 75% majority vote, going by the way weighted votes are allocated among Centre and states in the Council. The other states/Union territories opposed to the borrowing proposal include Puducherry, Chhattisgarh, Telangana and Delhi.

Isaac proposed two non-negotiable terms for further talks—dropping the idea of classifying states’ GST revenue losses as pandemic-related and those arising from GST implementation, the basis for the two borrowing options. He also said that states’ entire GST shortfall needs to be compensated and that it cannot be linked to the normal or additional borrowing limits allowed to states. If these terms are met, further talks would be possible on issues like who should borrow—Centre or states—and in what proportion and the repayment through extension of cess beyond 2022. He also said that while consensus is explored on these issues, it was important that at least a part of the compensation is paid to states immediately.

“If there is no consensus in the GST Council on the negotiable issues, the legal provisions for dispute resolution mechanism within Council should be activated without delay. Interim payments towards compensation shall continue in the interim period," said Isaac.

However, Bihar deputy chief minister Sushil Kumar Modi has urged Union finance minister and GST Council chairperson Nirmala Sitharaman to act fast and make arrangements for willing states to raise debt given the urgency of fund requirement faced by states, Mint reported on Saturday.

If a common ground proves to be elusive and the Council opts for voting, it would be seen as a breakdown of consensus. Voting was done only once in the past on the issue of lottery taxation in which some states could not agree upon.

Experts are seeking early resolution of the issue. “Businesses would expect that the present uncertainty regarding the duration and methodology of the cess are removed and there is clarity on both aspects as they go about reviving their businesses," said M.S. Mani, partner at Deloitte India.

The GST compensation requirement is huge. Raising tax rates is not an option and there is a limit to tightening compliance measures, said Abhishek Jain, tax partner, EY.

gireesh.p@livemint.com

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