GST Council meeting | States unlikely to go for voting on compensation gap issue

States are unlikely to go for voting the issue of GST compensation dues during the ongoing GST council meeting - the first after the Centre provided the states with two borrowing options to solve the issue, sources in finance ministry said.

States, which have been opposing the Centre's formula for the filling the compensation gap, may opt for Rs 1.1 lakh crore borrowing option, sources added. Suggestions on dispute mechanism resolution are also unlikely.

Previously in the 41st GST Council meet, the Centre had proposed Rs 97,000 crore borrowing in its first option based on 10 percent revenue growth.

GST Council to meet today: Stage set for stormy session as compensation dues issue to take centre stage. 

Till now 21 states, mostly ruled by BJP and its allies, had opted to borrow Rs 97,000 crore to meet the GST revenue shortfall. While states of Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal have taken time to respond to the options given by the Centre.

State like Bihar has sought the Centre to issue pending compensation dues worth over Rs 2 lakh crore to be settled soon. Bihar Deputy Chief Minister Sushil Kumar Modi even wrote a letter to the Union Finance Minister.

Government sources claim states not submitting their borrowing options before the GST Council meet on October 5, 2020, might have to wait till June 2022 to get their compensation dues. This is, however, subject to the condition that the GST Council extends the cess collection period beyond 2022.

Earlier, the Centre had given the states two options to borrow either Rs 97,000 crore from a special window facilitated by the Reserve Bank of India or Rs 2.35 lakh crore from the market. It has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

According to the government's calculation, there has been a staggering Rs 2.35 lakh crore GST revenue shortfall, out of which shortfall of about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is due to the impact of COVID-19 on states' revenues.

With few states opposing the Centre's options, the latter proposed to increase the interest-free borrowing limit for states to around Rs 1.1 lakh crore through the special window of the Reserve Bank of India. Also, the Centre has revised its GST growth forecast from 10 percent to 7 percent.

Former finance minister P Chidambaram opined that states must stand firm on the rejection of two options proposed by Centre. He also commented that the outcome of the GST Council meeting would be tested for Centre's adherence to law and to its promises.

"States must stand firm on the rejection of the two meaningless options offered by the Centre and insist that the Centre should find the money and pay the promised compensation," former finance minister and senior Congress leader P Chidambaram said on Twitter.