The next meeting of the all-powerful Goods and Service Tax Council is likely to be convened in the last week of August or the first week of September. The meeting may focus entirely on discussions between the Centre and States on the details of extending compensation beyond June 2022, Moneycontrol has learnt from top government sources.
While the Centre has in principle agreed to extend the compensation cess, the modalities and details are yet to be taken up.
“The next meeting is likely to be held late this month or early in September. We are working out the details. The agenda is likely to be compensation beyond June 2022,” said a top official.
Compensation pact
When the GST came into being, States had agreed to join the new tax regime provided they were compensated for any revenue loss in the first five years, from July 1, 2017 to June 2022.
Finance Minister Nirmala Sitharaman, who heads the GST Council, had said after a Council meeting in June that there would be discussions on the matter. “There will soon be a special session only to discuss the issue of compensation cess beyond July 2022,” Sitharaman had said.
It was in October 2020 that the Council had decided, in principle, to extend the compensation beyond the original five years.
Section 18 of the Constitution (101st amendment) Act, 2016, and Section 7 of the GST (Compensation to States) Act, 2017, permits the loss of revenue to be compensated to States at the end of every two months for five years.
Pandemic impact
The shortfall is calculated assuming a 14 percent annual growth in GST revenue over the base year of 2015-16.
Officials say that the Centre will also discuss with States whether to stick to the 14 percent assumed growth rate beyond 2022.
“The pandemic has hit the finances of the Centre as much as the States. To compensate States at an assumed rate of 14 percent GST growth, something that was decided pre-Covid, is something we will discuss with States,” the official quoted earlier said.
The official said that in the upcoming meeting, various options and scenarios will be discussed with States on how best to carry forward compensation beyond June 2022.
For the ongoing 2021-22 financial year, the Centre has already released Rs 75,000 crore to States and Union Territories to compensate them for the shortfall in GST revenue.
The GST Council, in its meeting on May 28, had decided that the Central government would borrow Rs 1.59 lakh crore and release it to States and UTs with a legislature on a back-to-back basis to meet the resource gap due to the short release of compensation on account of the inadequate amount in the compensation fund.
These borrowings, made by the Centre and transferred to the States, are in addition to the normal GST compensation released every two months from actual cess collection. The balance will be released in the second half of 2021-22, in steady instalments.
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