In a letter to the states, the Center has promised that it will clear its Goods and Services Tax (GST) arrears despite a drastic reduction in GST cess collections amid the coronovirus epidemic, a situation described as “God’s Act “has been done. “By Finance Minister Nirmala Sitharaman.
In the letter, the government said it wanted to “steer clear of avoidable borrowing when it can be done at the state level” at the central level because the epidemic is subject to “great stress”.
The Union Finance Secretary and the Secretary of Expenditure will hold an online meeting on 1 September, in which the questions of the states on the two options proposed by the Center will be answered – first the states will not have to do debt service or repay it from other sources, and the other states will have to pay any There will be no need to repay the principal amount from other sources.
“The Government of India (former Finance Minister) Mr. (Arun) Jaitley’s statement shows and is actively working with the states for such an arrangement. Government of India will support the extension of indemnity cess for such period .The letter states that it is necessary to fully discharge any arrears of compensation.
The GST Council, which makes national tax policies, was given both options after a meeting on 27 August and asked states to take a decision within a week.
The Center is strict on paying GST arrears to states that have not earned much in the months of lockdown due to the COVID-19 crisis this year. For example, Punjab has said that it may incur a revenue deficit of Rs 25,000 crore this year. Haryana has also complained that it used to get maximum revenue from taxes before the GST came into force in July 2017.
“The current economic situation is such that central revenues are under more stress than GST revenue. Direct taxes on wages and salaries are also severely affected. Customs revenue is also suffering a slowdown in imports. Central expenditure is not only The epidemic has spread in response. But also according to the needs of national security. It is a national problem which is not a problem of the central government.
“Therefore it is in the collective interest of the Center and the States, and in the interest of all economic institutions, including the nation and the private sector, not to take any avoidable borrowing at the central level when it can be done at the state level,” the government letter said in.
“This year the Indian economy, the global economy, is suffering from an external shock, namely the COVID-19 epidemic, whose scope and scale are unprecedented in history. Parliament cannot clearly consider the historically unprecedented situation of huge loss of revenue. Was. From the base – independently of the GST implementation arising from an act of God – both directly and indirectly, affecting the revenue of both the central and the state. Nevertheless, the operative clause of section 7 does not make such a distinction Do. Compensation is payable for the entire deficiency. Even if it is not due to GST implementation). This situation has been clarified by the Attorney General and accepted by the Central Government, “the government said.
The state can choose either of the two options, after which their compensation, lending and repayment will be dealt with, the government said. However, the options apply only for shortfalls in the current fiscal year or 2020-21.
The government said on Thursday that the reduction in GST collections for FY 2021 is 2.35 lakh crore.
Under the law governing GST, states have been guaranteed payment for loss of revenue in the first five years since GST came into force on 1 July 2017. This means that states have been promised compensation for any revenue shortfall by 2022 – down from the 14 percent annual increase since July 2017 if they fell.