The government said on Thursday that the coronavirus pandemic has hit the Goods and Services Tax (GST) collection where the shortfall is Rs 2.35 lakh crore. The announcement was made after a GST Council meeting chaired by finance minister Nirmala Sitharaman.
Interacting with media after the meeting, Sitharaman referred to the coronavirus pandemic as an ‘Act of God’ and said it may result in contraction of the economy this fiscal.
“The annual GST compensation requirement is estimated to be around Rs 3 lakh crore, and cess collection is expected to be around Rs 65,000 crore, leaving us with an annual compensation gap of Rs 2.35 lakh crore,” said Ajay Bhushan Pandey, Revenue Secretary at the Finance Ministry.
He added that during the April to July quarter, total GST compensation to be paid is Rs 1.5 lakh crore. “This is so because there was hardly any GST Collection in April and May,” said Pandey.
The five-hour-long meeting was attended by representatives of all states, who held deliberations via video conferencing on ways to make up for the shortfall in states’ revenues.
While Congress and the states ruled by non-NDA parties pushed for the Centre meeting its statutory obligation of covering the deficit, the Union government cited a legal opinion to say it had no such obligation if there was a shortfall in tax collections.
The Centre was of the opinion that the states should borrow to make up for the shortfall in the tax revenues that have been compounded by the Covid-19 crisis.
Setting the tone for the meeting, West Bengal Finance Minister Amit Mitra had written to Sitharaman on August 26 saying states should not be asked to borrow from the market to make good the shortfall in GST revenue collection.
“The Centre must pay the compensation from the different cesses that it collects, as it is not getting devolved to the states. In case of a shortfall it is the responsibility of the Centre to garner resources for fully compensating the states, as per the formula agreed upon with the states,” Mitra wrote in his letter.
In 2017, 28 states agreed to subsume their local taxes such as VAT into the new, nationwide Goods and Services Tax (GST), in what was hailed as the biggest tax reform.
At that time, the Centre had promised to compensate states for any revenue loss for five years from a pool created by levying cess over and above the GST on luxury and sin goods.