42nd GST Council meeting: Compensation cess extended beyond 2022, say sources : 05-10-2020

The 42nd goods and services tax (GST) Council meeting headed by finance minister Nirmala Sitharaman has approved extension of the GST compensation cess levy beyond 2022.

Sources aware of the development said that levy will be reviewed and decided from time to time. The proposal was to extend the levy by two years till 2024.

The decision was among the first to be taken at the meeting where debate on the Centre’s proposals to meet the GST compensation shortfall, will take center stage.

The rift between BJP ruled and opposition led states may widen with the former set to seek faster disbursement of funds through the special borrowing window proposed by the Centre, having opted for borrowing Rs 97,000 crore.

But opposition led states will dig in their heels, demanding that Centre borrows and provides to states, as opposed to states borrowing, since it is the statutory obligation of the government to make up for revenue loss to states.

“The outcome of the GST Council meeting today will be a test for the central government’s adherence to law and to its promises,” said former finance minister P Chidambaram in a Twitter post ahead of the meeting on Monday.

“There are two deficits: GST Compensation deficit and Trust deficit. The Centre has no clue about how to bridge either deficit,” he said.

He added that 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.

At the GST Council meeting on August 27, the Centre proposed that the states could borrow Rs 97,000 crore, equivalent to the revenue loss due to the GST transition, or Rs 2.35 lakh crore, equivalent to the revenue loss due to the GST transition and Covid-19. In the first option, the principal and interest would be paid from the cess fund, while in the second option, the states would bear the interest.

About 20 states have opted for the first borrowing option, but others have rejected both, which may prompt voting on the matter. States may also seek for a dispute resolution mechanism.

GST Council has worked on consensus among all stakeholders since inception, with the exception of one meeting where voting took place in December last year on the issue of state level lotteries.

Sources say that some more options may be discussed by both Centre and states to arrive at a consensus.

The GST Council will also take up procedural issues aimed at simplification besides rate rationalisation on non-alcohol based sanitizers.

Source : Financial Express

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