41st meeting of GST Council to be held via video conferencing today

The Goods and Services Tax (GST) Council will meet today, i.e. August 27, 2020, with the agenda of compensation for loss of revenue arising from the implementation of GST. The 41st meeting of the GST Council will be held via video conferencing.

During the meet, the council may have a discussion on measures to make-up the shortfall in states' revenues.

Ahead of the meeting, the chief ministers of opposition-ruled states got together to devise a common strategy on the issue. It seems that the 41st GST Council meeting will be a stormy affair as opposition-ruled states have united to pressure the centre to give them the promised compensation for loss of revenue arising from the implementation of GST.

Attorney General K K Venugopal had earlier opined that the Centre is not legally bound to make up from its coffers any shortfall in GST revenues of states.

The Centre had in March sought views from the Attorney General on the legality of market borrowing to make good the shortfall in the compensation fund.

Under 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 Centre had in March sought views from the Attorney General on the legality of market borrowing to make good the shortfall in the compensation fund -- a corpus created from levy of additional tax on luxury and sin goods to compensate states for revenue shortfall arising from their taxes being subsumed into GST.

The AG in his view had also said the GST Council has to decide on making good the shortfall in the GST compensation fund by providing the sufficient

amount to be credited to the corpus.

Under 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 government, sources added.

Any borrowing of the central government is upon the security of the Consolidated Fund of India. Similarly, borrowing by a state government is upon the security of the consolidated fund of the state. In either case, it would lead to increased general government debt burden and a higher fiscal deficit.

The payment of GST compensation to states became an issue after revenues from the imposition of cess started dwindling since August 2019. The Centre had to dive into the excess cess amount collected during 2017-18 and 2018-19.

The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during the 2019-20 was Rs 95,444 crore.

The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.