This Article is From Aug 28, 2020

Covid "Act Of God", We May See Economy Contract: Nirmala Sitharaman

GST Council meeting: The centre is hard pressed on paying GST dues to states that have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis

GST Council meeting: Finance Minister Nirmala Sitharaman and other officials participated

New Delhi:

The coronavirus pandemic has hurt goods and services (GST) collection and the shortfall is Rs 2.35 lakh crore for fiscal 2021, the government said on Thursday. Finance Minister Nirmala Sitharaman, after a meeting of the decision-making body for fixing GST policies, said the coronavirus pandemic was "an act of God" and an unforeseen factor that affected GST collections. "...This year we are facing an extraordinary situation. We are facing an act of God where we may even see a contraction," she said.

The centre has released over Rs 1.65 lakh crore as GST compensation to states for fiscal 2020, including Rs 13,806 crore for March, while cess collected for GST compensation was only Rs 95,444 crore, Ms Sitharaman said.

The meeting of the GST Council on Thursday was held amid severe pressure from states that have been seeking compensation for revenue shortfall amid the coronavirus pandemic.

The centre is hard-pressed on paying GST dues to states that have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis. Punjab, for example, has said it may see a revenue deficit of Rs 25,000 crore this year.

Some of the options that the GST Council considered to pay off the states include borrowing from the Reserve Bank of India (RBI).

"Two options were placed before the states. We can facilitate through RBI. States have asked to put us both the options in a detailed form today and give them seven working days, after that they will come back. It means we can have a small meeting on GST. We will take a call. Two bi-monthly payments are delayed this year. We want only for this year. The GST Council can look into the payments again in April next year," Ms Sitharaman said.

Congress-ruled states and those run by parties other than the BJP have said the centre has a statutory obligation of paying GST dues to them. The centre has, however, claimed it has no such obligation if there is a shortfall in tax collections.

"Government of India owes us Rs 4,400 crore for a small state like Punjab for which the total salary bill is Rs 1,800 crore. It is getting difficult for us to run the state," Punjab Finance Minister Manpreet Singh Badal tweeted.

Under the law that governs goods and services tax or GST, states have been guaranteed payment for loss of revenue in the first five years since the GST came into force on July 1, 2017. This means states have been promised compensation for any revenue shortfall till 2022 - if they fell below 14 per cent annual growth since July 2017.

The government's top lawyer Attorney General KK Venugopal has also said the centre has to compensate states fully for the loss of revenue in GST during the coronavirus crisis, according to sources.

The Congress has called the centre "withholding" GST dues to states a "sovereign default" and going back on constitutional guarantees, which had been the reason the states had come on board with the GST plan in the first place.

GST collections including compensation cess to the states had been falling short of targets even before the coronavirus pandemic, making it difficult for the centre to compensate the states.