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“Rs 20,000 crore to be Given to States as a Compensation Cess”, Sitharaman Finance Minister Stated at 42nd GST Council Meeting

Nirmala Sitharaman Finance Minister of India said 21 states will be offered a compensation amount calculated around 20, 000 crore. States had opted for one of the two options the center had previously suggested for borrowing to meet the shortfall in GST collection

By Swati MIshra

Due to the heavy fall in GST collection states have been demanding compensation from the Center Government to meet their revenue shortage. Stated were offered two options earlier. The Center and the States on Monday could not reach at any mutual agreement on the issue of pending compensation at the 42nd Goods and Services Tax (GST) Council meeting held on October 5, 2020, even as Finance Minister Nirmala Sitharaman addressed, “Compensation cess amount which is collected this year about Rs 20,000 crore would be disbursed to all states tonight”.

Nirmala Sitharaman also said on the issue of long-pending Integrated Goods and Service Tax (IGST) and added GST Council had discussed over this.

 

The decision was taken:

  • Levy of Compensation Cess to be extended beyond the transition period of five years that is beyond June 2022, for such period as may be required to meet the revenue gap. Further details to be worked out.

 

  • Center to pay out compensation of Rs 20,000 crore to States by today in order to fill the loss of revenue during 2020-21 and an amount of about Rs 25,000 crore on account of IGST of 2017-18 by next week.

 

  • Enhancement in feature of return filing – the council decided to revise the due date of furnishing quarterly GSTR-1 by quarterly taxpayers to the 13th of the month succeeding the quarter effective from January 1, 2021.

 

  • Amendment to the CGST Rules – several amendments in the CGST Rules and FORMS have been introduced in the GST Council meeting which includes provision for furnishing of Nil FORMS CMP-08 through SMS.

 

Sitharaman said 21 states had opted for one of the two options the centre had previously suggested for borrowing to meet the shortfall in GST Collections, but some states were not able to agree with any of the two options, and the council decided for more consultations. Because of not reaching any conclusion the GST Council has decided to meet again on October 12, 2020.

The centre’s estimates have pegged the GST compensation requirement at around Rs 3 lakh crore this year, while the cess collection is expected to be around Rs 65,000 crore – an estimated compensation amount fall by Rs 2.35 lakh crore which is assuming 10% revenue of growth over last year.

Some states have targeted government by saying 10% revenue growth for calculating revenue loss had happened due to the implementation of GST and the shortfall per cent could be high. They said gross GST revenue growth in the financial year 2020 was only 3.8% as compared with FY 2019.

 

What were the two options:

In the previous GST Council meeting scheduled on August 27, 2020, the Center had offered two choices or options to states – to either borrow Rs 97,000 crore, the shortfall amount on account of GST implementation, from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore that including Rs 1.38 lakh crore shortfall due to COVID-19, from the market.

Those states who were not agreeing on any of the options expecting the Centre Government to borrow and compensate them.

 

She also clarified that it is wrong to say that those states who have not decided will not get any fund. Nobody will be denied compensation right arising due to GST or COVID-19 pandemic. Some changes have been made in option 1. Some states have recommended reconsidering the 10% based calculation. We decided before the meeting that the base calculation for GST borrowing option 1 will be brought down to 7 % from 10%.

 

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