Ajit Pawar proposes Centre borrow a loan to pay GST compensation to state

Maharashtra expects Rs 22,534 crore compensation from GST Consolidated fund

@vivekbhavsar

Mumbai: Maharashtra proposes the Union Government to borrow loan from the open market to pay the dues towards Goods and Services Tax (GST) to the states. Maharashtra Minister Finance and Planning, Ajit Pawar while taking part in the 41st GST Council meeting via video conference on Thursday suggested to Union Finance Minister Nirmala Sitharaman that rather of asking the state to borrow loan from the open market, Centre should obtain it and compensate to the states.

Maharashtra is expecting Rs 22,534 crore dues towards Centre against GST compensation. According to GST Compensation Law, it is bound on Centre that states to be given compensation. 

“Central government may obtain a loan with a less interest rate whereas States will have to pay more interest on loan taken from the open market. On the other hand, If all states will explore a loan from the open market, there is a chance of a rise in interest rate. For states, it is difficult to pay back the loan and the interest and hence, Centre should borrow the loan,” Pawar stated in the meeting.

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“It is Centre’s commitment to compensate and bring states out of the economic crisis,” Pawar added. He stressed on pending dues towards Centre against GST compensation till July 2020. “As of July 2020, the pending dues is Rs 22,534 crore and if we will not receive in time, the due amount is likely to surpass to Rs one lakh crore,” said Maharashtra finance minister.

Pawar also urged to increase the term to collect cess by the state. At present and according to GST Compensation Law, the tenure of five years will over in the year 2022.

Meanwhile, Union Finance Secretary Ajay Bhushan Pandey informed the GST Council that due to corona pandemic situation, the cess collection is expected to be around Rs 65,000 crore only. The annual GST compensation requirement for all the state’s is estimated to be around Rs 3 lakh crore. “It means, there will an annual compensation gap of Rs 2.35 lakh crores. Also, the shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crores,” said Pandey.

During April-July 2020, total GST compensation to be paid is Rs 1.5 lakh crores, this is so because there was hardly any GST Collection in April and May as there was a nationwide lockdown and maximum industries were shut down.

Attorney General has clearly opined that the compensation gap cannot be met from India’s consolidated fund. Hence, there would be only two options before the Centre which has informed by the finance ministry during the GST Council meeting.

The first option was to provide a special window to states, in consultation with RBI to provide Rs 97000 crores at a reasonable interest rate. The second option was that the entire GST compensation gap of Rs 2,35,000 crore of this year can be met by states, in consultation with RBI. These options will be sent for a view within 7 days and will apply for this fiscal year only.

Union Finance minister Nirmala Sitharaman said that once the arrangement is agreed upon by GST Council, we can proceed fast and clear these dues and also take care of the rest of the financial year. “These options will be available only for this year. In April 2021, the Council will review and decide action for the 5th year,” said FM Sitharaman.