GST Council to meet tomorrow, Compensation Shortfall on agenda

Описание: The upcoming GST council meeting is set for a stormy start as Opposition states are looking to take the Centre head-on on the issue of a compensation fund shortfall. The move comes as Congress president Sonia Gandhi is holding a meeting with opposition leaders like Mamata Banerjee, Uddhav Thackeray, Hemant Soren for evolving a collective stand ahead of the meeting.

The weak revenues due to slowdown in economic activity and COVID-19 induced lockdown had hit the centre's GST revenue collection. The centre had paid the states the full compensation for the year FY19-20, however, had to mull a way ahead for making up for the shortfall in the compensation cess kitty. ET Now learns among the various options on the table to make up for the cess shortfall, the GST council will look at the possibility of market borrowing. Other options include hiking the cess on sin goods like tobacco and increasing the basket of goods that attract cess.

Both BJP and non-BJP ruled states have raised concerns over the compensation shortfall. Punjab minister Manpreet Singh Badal said that not paying GST dues would amount to ‘sovereign default’, while Bihar Deputy CM Sushil Modi said paying compensation was the centre’s ‘moral commitment’. Kerala Finance Minister Thomas Issac had even threatened legal action.


India's top law officer Attorney General KK Venugopal had opined that the Central Government is under no obligation to pay the states the GST compensation shortfall and the GST Council has to decide on ways to make good any shortfall. The AG has opined that the Constitution provides for GST compensation to states for loss of revenue on account of implementation of GST however, the Constitution or GST laws don't account for compensation to states due to natural disaster, COVID, or economic slowdown.

Sources suggest that states may not be willing to borrow more for making up for the shortfall and hence it will be a tough negotiation tomorrow. The centre also has already said it will be borrowing as much as 12 lk crore in this year and any more borrowing will further add to centre’s fiscal deficit.

The centre had promised assured compensation to states when the GST was introduced to comfort the states in terms of their finances. However, the shortfall in GST compensation fund has split wide open the fissures in the body that is working on the principle of federal co-operation.

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