In a worry for the government facing revenue crisis, its top lawyer Attorney General (AG) KK Venugopal has advised it must compensate states fully for the loss of Goods and Services Tax (GST) revenue during the coronavirus lockdown. The development comes after the Centre sought suggestions from the attorney general on the states' demands to compensate for the loss of revenue during the COVID-19 pandemic crisis in India.
Various opposition parties, including the Congress party, have criticised the Centre's stand on the issue. Accusing the Centre of going back on its promise, the Congress has called it a "sovereign default". The party said the primary reason that various states came on board on the issue of GST was the "constitutional guarantees" given by the Centre.
BJP leaders have also supported the states' demands. BJP leader Sushil Modi, who's also the GST Council member, said the Centre should borrow and pay the GST compensation to states as it's the government's moral responsibility. The AG has also said the Centre also can't stretch the five-year extension period.
Since FY16, states are entitled to get 14 per cent hike in revenue, though COVID-19 has badly hit the Centre's revenue. The Centre has been of the view that states can be compensated for the revenue shortfall from compensation cess only.
The GST Council will meet on August 27 under the chairmanship of Finance Minister Nirmala Sitharaman to decide on the issue. The Council will make a decision on how much of the revenue loss incurred by the states will be borne by the Centre. The meeting will be held via video-conferencing and members will assess the gap between the total GST Cess collection and the compensation cess yet to be paid to various states.
The council will also discuss a proposal to borrow from market to meet revenue shortfall. Another meeting of the GST Council will be held on September 19.