GST compensation cess: The revenue from the GST compensation cess is given to the states, so the central government cannot take a loan against the guarantee of this tax because it does not belong to it. Sources in the Finance Ministry have given this information to PTI. The central and state governments are facing each other to compensate for the loss of about Rs 2.35 lakh crore in Goods and Services Tax (GST) revenue during the current financial year. According to the calculation of the Center, out of this amount, only about Rs 97,000 crore will be lost due to implementation of GST while the loss of revenue of the remaining Rs 1.38 lakh crore will be due to the impact of COVID-19.
Last month, the central government had placed two options before the states to compensate for GST revenue. One option was given that the states should complete the GST compensation of Rs 97,000 crore by borrowing from the special window facility provided by the Reserve Bank, and the second option was to raise the entire amount of Rs 2.35 lakh crore from the market. The GST compensation cess to repay this loan will be continued even after 2022.
6 states disagree on the Center’s proposal
GST compensation cess is levied on luxury, non-essential and harmful items. Chief ministers of six non-BJP ruled states have written to the central government opposing both the options given to the states. West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu has asked the Center to arrange for the compensation, ignoring the suggestion of borrowing by the states to offset the revenue.
Central government sources said that under the GST law, compensation cess is a tax that belongs to the states. The center does not have authority over it, in such a situation the center cannot raise money from the market in lieu of this tax. A source said, “According to Article 292 of the Constitution of India, the central government can borrow only on the guarantee of its resources and taxes under the Consolidated Fund of India. She cannot borrow against a tax guarantee that does not belong to her.
Center has increased borrowing limit of states
Sources said that compensation cess is a dedicated resource to the states and only states can borrow from the market in return for future receipts under this cess. This cess will eventually go to the Consolidated Fund of States.
During the Corona epidemic, the central government has already raised the borrowing limit of the states from 3 percent to 5 percent. That is, the state governments can now borrow up to 5 percent of their GSDP. Sources say that the states have availed loans up to 1.25 per cent of their GSDP on an average so far. There are only a few states whose borrowings have reached 2 percent of GSDP.