GST Council Meeting: ₹2.35 Lakh Crore GST Shortfall, Centre Places Two Options Before States

New Delhi: Union Finance Minister Nirmala Sitharaman today chaired the 41st meeting of the Goods and Services Tax (GST) Council to discuss on issues relating to compensating states for revenue shortfall. 

The Centre has provided two options before the states to meet the shortfall in the GST revenues.

The total shortfall in collection of GST in the country is estimated at ₹2.35 lakh crore, said revenue secretary Ajay Bhushan Pandey. The total GST compensation gap of Rs 2,35,000 crore of this year can be met by the states in consultation with Central Bank.

Two options were placed before the states, we told them that we will facilitate talking with RBI and help getting G-security linked interest rates so that each state does not have to struggle for loans. States have requested us to lay down both options in detail, and give them 7 full working days to deliberate on it and get back, a brief GST Council meeting may be held again, said Sitharaman.

The two options before states are 1) A special window can be provided to the states, in consultation with the Reserve Bank of India, at a reasonable interest rate for borrowing of ₹97,000 crore. The amount can be repaid after five years (of GST implementation) ending 2022 from cess collection. 2) The second option is to borrow the entire ₹2.35 lakh crore short fall under the special window.

The centre will give a further relaxation of 0.5 percent in states’ borrowing limit under FRBM Act as second leg of Option 1. States can choose to borrow more, beyond the expected compensation itself, since that is the injury caused by COVID-19. If a state goes for Option 1, it will borrow less, but its compensation entitlement will be protected. So choice is between i) borrowing less & getting cess later, & ii) borrow more & pay for it using cess collected during transition period.

Responding to a media query, the Sitharaman said that the GST Council agreed that this is not the appropriate time to talk of increases in tax rates.