Dealing with GST compensation shortfall not alone centre’s responsibility

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Dealing with Goods and Services Tax (GST) compensation shortfall is not alone centre’s responsibility, said sources.

“It’s a force majeure situation. Centre and states must collectively resolve it. GST Council must put its collective decision-making mechanism at work and resolve this critical issue,” they said.

The GST compensation cess for FY21 is seen at Rs 26,000 crore per month in view of the unprecedented COVID-19 situation prevailing in the country. “Such difficult financial situation has never arisen in the past century and there’s a visible huge gap between collection of cess and payment to states/UTs,” the sources said.

The total amount of compensation released by the government for the year 2019-20 is Rs 1,65,302 crore whereas the amount of cess collected during the year 2019-20 was Rs 95,444 crore. Therefore, the government has paid on an average monthly compensation cess of about Rs 13,775 crore to the states/UTs in the last fiscal year 2019-20, while it was able to collect only at an average of Rs 7,953.6 crore a month, as per sources.

The government has, however, paid compensation cess successfully for three fiscal years so far to the states/UTs since the rollout of GST in July 2017.

According to sources, it has been reported in media that Attorney General for India has opined that there is no obligation on the centre under the GST laws to compensate for the loss of revenue on account of natural disaster, COVID, or economic slowdown, etc. as they are not related to implementation of GST. Hence, the GST council has to decide how to meet the shortfall in such circumstances and not the central government.

Sources added that loss of revenue is for both centre and states, and this critical situation should not be viewed as only the problem of the states too.

“The centre is also equally facing an extraordinary fiscal crisis and is not only at loss of the GST collection but also of income tax, customs, excise, etc. It’s a collective problem and must not be viewed as states vs. centre problem,” they said.

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