GST Council Meeting Highlights: 'Act of God' Behind Economic Slump, Says FM Nirmala Sitharaman, States Given 7 Days to Revert on Compensation Gap Issue

New Delhi, August 27: Union Finance Minister Nirmala Sitharaman on Thursday chaired the 41st Goods and Services Tax Council meeting and said that GST collection has been severely impacted due to coronavirus pandemic this year. Calling COVID-19 an 'Act of God', FM Sitharaman said, "...This year we are facing an extraordinary situation. We are facing an act of God where we may even see a contraction." The Union Minister even gave the states seven days to get back on filling the compensation gap of Rs 2.35 lakh crore and hinted brief GST Council meeting soon.

Addressing a press conference on the 41st GST Council meeting, Sitharaman said, "Two options were placed before states, we told them that we will facilitate talking with RBI and help to get G-security linked interest rates so that each state does not have to struggle for loans." Adding more, the Union Minister said, "States have requested us to lay down both options in detail, and give them 7 full working days to deliberate on it and get back, a brief GST Council meeting may be held again." GST Council Meet: Compensation Gap Estimated at Rs 2.35 Lakh Crore, Largely Due to COVID-19, Says Centre.

The following comment of the Union Minister arrived after Finance Secretary Ajay Pandey stated that a compensation gap has arisen this year -- expected to be Rs 2.35 lakh crores -- is due to COVID-19 as well. The shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crores, he added.

Here are the key highlights of the 41st GST Council Meeting:

1) Finance Secretary Ajay Pandey said GST collection has been severely impacted this year, due to COVID-19 pandemic.

2) Centre released more than Rs 1.65 lakh crore as GST compensation to states for FY 2019-20, including Rs 13,806 crore for March. The total amount of compensation released for 2019-20 is Rs 1.65 lakh crore, whereas cess amount collected was Rs 95,444 crore.

3) Attorney-General (AG) said that GST Compensation has to be paid for a transition period from July 2017 to June 2022. But compensation gap to be met from the cess fund, which in turn has to be funded from levy of cess.

4) Compensation gap which has arisen this year -- expected to be Rs 2.35 lakh crores -- is due to COVID-19 as well. The shortfall in compensation due to the implementation of GST has been estimated to be Rs 97,000 crores.

5) To fill this gap, AG said a special window to states, in consultation with RBI, should be formed to provide Rs 97000 crores at a reasonable interest rate. And secondly, the entire GST compensation gap of Rs 2,35,000 crore of this year can be met by the states, in consultation with RBI. Both the options will be sent to states for a view within 7 days and will apply for this fiscal year only.

6) FM Sitharaman said, "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 5th year."

7) Total GST compensation during April-July 2020 to be paid is Rs 1.5 lakh crores, added Revenue Secretary. Citing the reason, he said, there was hardly any GST Collection in April and May.

8) Annual GST compensation requirement is estimated to be around Rs 3 lakh crores, and cess collection is expected to be around Rs 65,000 crores, leaving us with an annual compensation gap of Rs 2.35 lakh crores, said the Revenue Secretary.

9) FM Sitharaman said, "The Government will give a further relaxation of 0.5% in states' borrowing limit under Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act, 2003)." Adding more, she said, "States can choose to borrow more, beyond the expected compensation itself, since that is the injury caused by COVID19."

10) Replying to a media query, FM Sitharaman said, "The GST Council agreed that this is not the appropriate time to talk of increases in tax rates. She was of the view that the states should not be burdened at any cost.

(The above story first appeared on LatestLY on Aug 27, 2020 05:42 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).