The GST compensation amount for FY22 at the Centre should be greater than the anticipated Rs 1.58 lakh crore: Opp-ruled states

The GST compensation amount for FY22 at the Centre should be greater than the anticipated Rs 1.58 lakh crore: Opp-ruled states

Three opposition-ruled states stated on Sunday that the compensation sum guaranteed by the Centre is expected to be more than the Rs 1.58 lakh crore anticipated by the Centre and that a special session of the GST Council will be summoned to debate it.

The finance ministers of Kerala, Punjab, and Chhattisgarh claimed during the GST Council meeting on May 28 that there was no unanimity on the compensation required for 2021-22 and that a special session will be summoned specifically to examine ‘Revenue Augmentation and Post June 2022 Compensation.’

Manpreet Singh Badal, Punjab Finance Minister, said that all states are experiencing revenue shortfalls of 20-50 per cent, and that “we have recommended that the Council should convene every quarter to discuss the income status of states.”

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“Punjab has a compensation gap of Rs 5,000 crore as of April. All opposition-ruled states agreed that the compensation sum from the federal government should be increased “PTI quoted Badal as saying.

Punjab, he added, has been lobbying for a discussion on the compensation system that will be implemented after June 2022, since states continue to experience revenue gaps as a result of the GST implementation compared to pre-GST times.

Kerala Finance Minister K N Balagopal stated that the Centre owes the state Rs 4,077 crore in compensation, and that the Centre should ensure that the states receive the promised revenue rise of 14%.

“The revenue growth projection of 7% is not a guess. Because some states are experiencing negative growth, this premise is invalid. We’ll have a conversation about it “Balagopal continued.

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T S Singh Deo, the Finance Minister of Chhattisgarh, said the Centre has made forecasts on compensation and borrowing, and that a comprehensive debate will take place at the GST Council’s special session, the date of which has yet to be determined.

For the current fiscal year, the Centre estimates that states will need Rs 2.69 lakh crore in compensation. According to the agenda note distributed before the Council meeting, over Rs 1.11 lakh crore will come from a cess on luxury, demerit, and sin items, which would be handed to states to compensate them for the revenue gap resulting from GST implementation.

The remaining Rs 1.58 lakh crore will have to be borrowed to satisfy the promised compensation, according to the note, which is predicated on the expectation that state revenue growth will be 7% this fiscal.

Section 206C(1H) of the Income Tax Act 1961 at a Glance

The Centre borrowed on behalf of the states and issued Rs 1.10 lakh crore in the fiscal year 2020-21 to make up for the GST revenue shortfall. A total of Rs 68,700 crore was collected through a cess charge.

However, there are voices against the extension. Former Bihar deputy chief minister Sushil Kumar Modi, who was closely associated with formulation of GST laws and represented Bihar in the GST Council till October 2020, said, “I don’t think it will be practical to extend the guaranteed compensation further. Except in FY18, revenue collection was not enough to achieve annual growth of 14% in any other year.

The average revenue growth of most states was 8-9% in pre-GST period and roughly, the rate has been same in the GST regime.” He added that it won’t be ‘feasible’ for the Centre to give states assurance of revenue growth for another five years. “It will take at least four years for the Centre to repay the loans (being taken for compensating states in FY21 and FY22) with interest. If the same assurance is extended, it will create a fresh liability. The cess collections won’t be enough to cover servicing of the existing debt (FY21 and FY22) and to give fresh compensations,” Modi noted.

 

Gst: 12 states accept centre’s Rs 97,000 crore borrowing option

 12 states, including Bihar, Andhra Pradesh, Uttar Pradesh, Meghalaya, Gujarat, Haryana, Karnataka, Madhya Pradesh, Sikkim, Tripura, Uttarakhand, and Odisha, have so far opted for the first option provided by the centre — Rs 97,000 crore borrowing to compensate for revenue shortfalls due to the shift to goods and service tax (GST).

Manipur is the only state that has opted for the second option, which includes borrowing under the Rs 2.35 lakh crore range, which entails revenue shortfalls due to the GST transition, as well as the economic downturn caused by Covid19.

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 Arunachal Pradesh, Nagaland, Goa, Assam, Mizoram, and Himachal Pradesh are likely to offer their preference between both the borrowing options offered by the Centre last month, in a few days

The centre, which has additional borrowing planned for FY21, requires states to borrow in order to cover the deficit in the cess fund. In the first window, both the principal and the interest would be covered by the termination fund and the States would also be compensated for the balance (Covid19 revenue loss). In the second option, the principal will be covered by a cess fund.

The GST Council will now meet on 5 October instead of 19 September. The question of the GST compensation shortfall may be raised in the monsoon session of the Parliament which begins today.

Approximately 10 opposition-led states have refused both borrowing options on the grounds that the Centre should borrow instead of states, while some have also sought the Prime Minister’s intervention to resolve the burning problem.

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The Centre claimed that it was not under the obligation to compensate for the loss of revenue, depending on the opinion of the Attorney General who stated that the GST Council had to find ways of dealing with the loss of revenue and not the Central Government.

In the current economic situation, it might not be feasible to raise the tax rate or to rationalize the rate in order to compensate for the shortfall, the Center announced at the Council meeting on 27 August putting forth two borrowing options for states.

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37th GST Council Meeting – What to anticipate?

The GST Council is good to go to meet for the 37th time on September 20, 2019 in Goa under the chairmanship of the finance minister, Smt. Nirmala Sitharaman. The Goa meeting has been pending for a year (because of weakness in health of the previous executive and union finance minister, lt. Arun Jaitley). The GST council is probably going to concentrate on improving income position, ITC for the Healthcare division, Reviewing Return Filings and GST Rate Reductions.

What to anticipate?

The 37th GST council is probably going to discuss about the accompanying issues in the up and coming meeting:

Decrease of GST Rates in Auto Sector

The automobile industry has mentioned a GST rate cut from 28% to 18%, in a prospect of pulling in clients in the up and coming festive season. While the government is excited about the same, this may bring about tremendous income loss.

The Fitment Committee, a board of authorities of the GST council that inspected the implications of a GST rate cut recommends that decrease in tax rate will cut down accumulations by over Rs 20,000 crore. Citing one of the senior finance ministry, “that it (GST rate cut) is accomplished for one segment, it can open floodgates. We ought not overlook the income circumstance.” This presumably brings down the opportunities of bringing GST rate related talks in the up and coming council meeting.

Review return filings

The 37th GST Council Meet is relied upon to survey the present and new return filings as well as spotlight on the phased presentation of new return forms. Moreover, the committee may likewise review penal proviso against non-filers, including suspending of Eway Bill issuance.

According to the insights till now, on an average 20 percent assessees don’t file the return inside the given due date which influences overall income collection.

ITC treatment in the health division

By the absence of input tax credit (ITC), a few medical clinics have claimed an approx. 8% drop in their yearly revenue margin. As these medical clinics (barring cosmetic surgeries and hair transplants) are excluded from GST charges, they can’t claim ITC, which in the long run prompts to an expansion in the cost of internal supplies. Hence, these medicinal services units have asked the finance ministry for a yield GST of 5% on such taxable services without ITC. GST council may think about the same for a discussion in the up and coming GST council meet.

Review present Revenue Position

In spite of the fact that the finance ministry has reduced the GST accumulation target from Rs 7.61 lakh crores to 6.63 lakh crores, (in like manner, with the State GST combined, for example from 1.14 lakh crores to 1 lakh crores, based on the interim budget plan). The ministry intends to build income gathering and maintain a strategic distance from a financial deficiency. Hence, the Council is probably going to consider the same for the discussion as well as start extra steps to cut down tax evasion.

Single Authority Mechanism for Export Refunds

The up and coming GST meet is probably going to approve a solitary expert system for exporters to authorize and process GST discounts for exporters in a quicker and easier way. Till now, state and central officials independently settle SGST and CGST refund claims, making the technique complex, which has additionally prompted piling of Refunds of around Rs 10,000 crore.

Same GST rates for Lottery Tickets

The lottery business has been requesting for a uniform GST rate of 12 percent and expulsion of tax on the prize money as the duel rate (12% for lotteries sold inside state and 28% for the ones sold outside) is hampering the development of the business. The Council in its July meeting had likewise chosen to look for legal opinion from the Attorney General on the issue and the same may be considered for a discussion in the upcoming GST Council meeting.

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