Goods and Services Tax – GST Dated:- 27-8-2020 – News – New Delhi, Aug 27 (PTI) A crucial meeting of the GST Council on compensating states for revenue shortfall began on Thursday with the states ruled by non-NDA parties opposing the Centre's move to ask states to borrow to meet the deficit. The 41st meeting of the Goods and Services Tax (GST) Council headed by Union Finance Minister Nirmala Sitharaman and comprising representatives of all states, held deliberations via video conferencing on ways to make up for the shortfall in states' revenues, sources said. 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 as well as BJP-JD(U)-ruled Bihar were of the opinion that the states should borrow to make up for the shortfall in the tax revenues that have bee
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at 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. GST collections including that of compensation cess had been falling short of the targets even before the pandemic, making it difficult for the Centre to compensate the states. States are supposed to receive half of the GST receipts. While the kitty of GST compensation cess may have lagged targets, the Centre has raised cess on items such as petrol and diesel, which have been kept out of the GST regime. This collection, which totals to several thousand crores of rupees, is not shared with states. Mitra wanted the Centre to make good the losses to states from this collection. Under no circumstances, states should be asked to borrow from the market as it will increase their debt servicing liability. Further, it may lead to cut in state expenditure which is
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fund by providing the sufficient amount to be credited to the corpus. Sources said the options before the Council for meeting the shortfall could be to rationalise GST rates, cover more items under the compensation cess or increase the cess, or recommend higher borrowing by states to be repaid by the future collection into the compensation fund. Under the GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16. Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss. The GST Council has to decide how to meet the shortfall in such circumstances and not the central govern
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