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GST Council Meet: Centre to borrow Rs 1.58 lakh cr to compensate states, says FM

GST Council Meet: Centre to borrow Rs 1.58 lakh cr to compensate states, says FM

"On GST compensation cess, same formula as last year to be adopted this year too. The rough estimate is that the Centre will have to borrow Rs 1.58 lakh crore and pass it on to states," said FM Sitharaman after the 43rd GST Council meeting

Union Finance Minister Nirmala Sitharaman, in the 43rd GST Council meeting on Friday, stated that the Centre will borrow Rs 1.58 lakh crore to compensate states for loss of revenue from GST.

"On GST compensation cess, same formula as last year to be adopted this year too. The rough estimate is that the Centre will have to borrow Rs 1.58 lakh crore and pass it on to states," said FM Sitharaman after the 43rd GST Council meeting.

The same formula on GST compensation cess was also used last year when it was introduced as relief for states for the loss of revenues arising from the GST implementation.

Under the GST law, states were guaranteed to be compensated bi-monthly for any revenue shortfall in the first five years of the GST implementation from July 1, 2017.  

Sitharaman added that a special session will be conducted to discuss modalities of the GST compensation cess such as collection, distribution, and time limit.

The revenue shortfall is calculated assuming a 14 per cent annual growth in GST collections of states, over the base year of 2015-16. Amid the second wave of the pandemic and the induced economic slowdown, GST collections declined, resulting in states continuing to face a shortfall in revenue.

Compensation cess is levied on products that are considered to be luxury or 'sin' goods. The collected compensation cess goes into the Consolidated Fund of India and is then transferred to the Public Account of India, where a GST compensation cess account has been created.

Last year, the GST Council decided to extend the levy of compensation cess beyond the transition period as it may be required to meet the revenue gap. Additionally, at the states' request, the Centre had decided to increase the shortfall amount to Rs 1.10 lakh crore from Rs 97,000 crores under the borrowing option. Sitharaman had said 21 states have chosen borrowing option 1 for compensation of revenue shortfall.

Sitharaman had also clarified that the Centre isn't denying compensation to any state but those who haven't chosen any borrowing option have to borrow from the market.

The GST council meeting, which was being held after a gap of almost eight months, was attended by the Minister of State for Finance, Anurag Thakur, finance ministers of states and union territories and senior officials from the Centre and states via video-conferencing. The previous meeting was conducted last year, on October 5, 2020.

(Edited by Vivek Dubey)

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