States stare at Rs 2.35 lakh crore GST shortfall: Centre refuses assistance, offers 2 borrowing options for crisis

At the end of a five-hour long meeting of the GST Council, Finance Minister Nirmala Sitharaman said there was no proposal to raise tax rates to make up for the shortfall that has been compounded by the COVID19 pandemic hitting economic activity. Citing a legal opinion from the Attorney General, she ruled out the Centre making good the shortfall from either its coffers or by borrowing on its balance sheet.

 The Centre also made a distinction between revenue lost due to implementation of the GST and the economic slowdown arising out of the COVID-19 crisis. The government said its legal obligation was only to compensate states for losses arising out of the GST rollout. The deficit can be made good by states borrowing using a special window, she said, adding this loan can be repaid after five years from the collection of GST cess. States can borrow about Rs 97,000 crore -- the deficit arising out of GST implementation -- or the entire Rs 2.35 lakh crore, she said. If states agree to either of the options, it would effectively mean that cess would continue beyond five years of GST rollout. The minister said the GST Council decided that the borrowing arrangement would be for the current fiscal and a review would be done at the beginning of the next financial year.

 A detailed note on the two options would be shared with the states and they would give their views on it in seven working days.

 While the non-NDA ruled states such as Kerala, Punjab and West Bengal had voiced strong opinions about the Centre’s obligation to compensate states, Sitharaman said there was no attempt to politicise the GST Council meeting on Thursday.