Categories: Business

GST Council to meet on Aug 27 to discuss compensation payout to states

Photo: PTI

GST Council to meet on Aug 27

new Delhi. The GST Council may meet on August 27 to consider the opinion of the Attorney General on raising the debt from the market to compensate the states for revenue compensation and meet the revenue shortfall for this compensation. Sources said that the sole agenda of the 41st meeting of the Goods and Services Tax (GST) Council would be to compensate the states. This meeting will take place through video conferencing. Apart from this, the full meeting of the council will be held on 19 September. Its agenda is yet to be decided.

Sources had said that the Attorney General (Chief Law Officer of the government) is of the opinion that the Center has no statutory obligation to compensate for any deficiency in the GST revenue of the states from its own fund. It had indicated that in view of the Attorney General's opinion, states may have to look at the option of market borrowing to meet the revenue shortfall. The GST Council will take a final decision in this regard. In March, the Central Government had sought an opinion from Attorney General KK Venugopal on the legality of borrowing from the market by the GST Council to meet the shortfall in the compensation fund. The Compensation Fund has been set up by levying additional charges on luxury and non-profit items. Through this, the states are compensated for any reduction in revenue by implementing GST. The Attorney General also opined that the council has to take a decision on meeting the shortfall in the GST Indemnity Fund by providing sufficient funds. According to sources, the council has options like rationalizing the reduction to GST rates, including some more commodities under the compensation cess or raising the cess or allowing more lending to the states. Later debt payments to states can be made from collections in the Indemnity Fund in the future. Since it is not practical to increase the tax or cess rates in the current situation, there is an option that every state should borrow from the market in lieu of its accumulated fund.

Under the GST law, states have been guaranteed to meet any shortfall in revenue from the implementation of the Goods and Services Tax for the first five years. GST came into force from July 1, 2017. The shortfall is calculated by basing a 14 percent annual increase in the GST collections of states under the base year 2015-16.

This post was published on August 19, 2020 9:43 pm

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