Compensation Issues May Resolve in Today's GST Council Meet

The hold on the GST compensation might finally get a momentary resolution at the Council meeting today. As the fiscally stressed states are unwilling to defer the matter further despite high spending pressure in the second half of 2020-21. Presently, certain dissenting states, such as Kerala might be keen on negotiating the favor of the Centre’s offer of the RBI window of 1.1 trillion.

 However, the opposing states are expected to simultaneously move the Supreme Court over the issue and stress on the demand for setting up a dispute resolution body on the issue of compensation. On the issue, about 21 states have opted for the RBI window.

Moreover, the states ruled by the National Democratic Alliance would stress for expediting the borrowing process for states that have picked either of the two options given by the Centre to make up for the compensation-cess shortfall. However, the meeting on October 5 had remained inconclusive thus the discussion was postponed to October 12.

Additionally, Himanta Biswa Sarma has suggested that polling could be conducted on the issue, and the matter decision making should not be delayed any further. He also said that other states may proceed with their course of action as moving to Supreme Court and there would be no objection from his side, and he hinted them to follow their way and both should not hinder each other’s measures.

Although, the sources in the Centre have pointed out that the issue of borrowing would not fall within the ambit of the GST Council and thus it should not come to the Council in the first place.

The Union finance ministry has suggested two solutions to states that is to borrow 97,000 crore which would be the result of the shortfall owing to GST implementation through the special window provided by the RBI and the second option is to borrow the full shortfall in compensation 2.35 trillion that includes the impact of the COVID-19 pandemic that is supported by the central bank.

The amounts to be paid by the compensation cess, which may extend beyond June 30, 2022, While the second option brings the proposed extension of cess would be used for paying only the principal, and not the interest.

According to sources close to the government, a minimum of 21 states and Union Territories that had agreed to the Centre’s options are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand, and Uttar Pradesh. While the center requires the support of 20 states to pass a resolution in the GST Council if polling is opted.

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