Thirteen states have given their borrowing options proposed by the goods and services tax council to meet shortfall in compensation from the centre amid the coronavirus pandemic.
The 12 states that opted to borrow funds under “Option 1” are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh, Uttarakhand and Odisha. Only Manipur has opted for “Option 2”.
Six more states – Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh – will give their option in a day or two.
Centre had proposed both options, so that a mechanism could be put in place as an exception this year, as Covid-19 disruptions and lower revenue collections have made it difficult for the Centre to meet its obligation on Goods and Services Tax (GST) compensation to states.
“The council meeting took place in the backdrop of the opinion of the Attorney General for India on the compensation cess issue where he has opined that there is no obligation on the centre under the GST laws to compensate for the loss of revenue. According the Attorney General, it is the GST Council which has to find ways to meet the shortfall in compensation and not the central government. Therefore, after the meeting the GST Council offered two options to the states to borrow,” as per source.
“It was discussed in the recent GST Council meeting that in the current economic scenario it may not be possible to increase tax rates or do rate rationalisation to meet up the compensation shortfall. However, borrowing could be an option to address this challenge. Thus, the central government is committed to helping the states to the utmost to meet the compensation shortfall through borrowing,” sources said.
As the first option, the Centre had proposed borrowing of Rs 97,000 crore by states with 0.5 per cent FRBM relaxation, while the second option was to borrow Rs 2.35 lakh crore to meet the full compensation in cess fund deficit