Centre to release Rs 20,000cr GST compensation, cess to be levied beyond 2022

Centre to release Rs 20,000cr GST compensation, cess to be levied beyond 2022
Finance Minister Nirmala Sitharaman addresses media on the outcomes of the 42nd GST Council meeting, in New Delhi, Monday, Oct 5, 2020. PTI/Shahbaz Khan

New Delhi: The Centre on Monday said it will release Rs 20,000 crore to states on account of GST compensation dues.

Briefing reporters after the meeting of the 42nd GST Council here, Finance Minister Nirmala Sitharaman said the states which received less apportionment of Integrated GST (IGST) for 2017-18, the Centre will next week transfer a cumulative Rs 24,000 crore to them.

On the issue of releasing compensation to the states, Sitharaman said: "This year whatever we have collected till now, Rs 20,000 crore will get disbursed tonight".

The compensation requirement of states between April and July stood at Rs 1.51 lakh crore.

On the issue of IGST, she said excess IGST apportioned to certain states would be retrieved. However, the minister did not mention the amount.

Sitharaman said Rs 24,000 crore would be released by the middle of next week to those states which have received less IGST share against their actual dues.

Meanwhile, the GST Council decided to extend the surcharge on taxes over luxury goods such as cars, and tobacco products beyond June 2022.

"Levy of Compensation Cess to be extended beyond the transition period of five years i.e. beyond June, 2022, for such period as may be required to meet the revenue gap," an official statement said.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

Centre to release Rs 20,000cr GST compensation, cess to be levied beyond 2022
Finance Ministers Nirmala Sitharaman with Minister of State Anurag Thakur chairs the 42nd GST Council meeting via video conferencing in New Delhi. PTI

The surcharge on cars and other luxury goods and tobacco products varies from 12 per cent to 200 per cent on top of the highest GST rate of 28 per cent. It was due to expire in June 2022.

The minister, however, did not give the duration for which this levy has been extended.

Finance Secretary Ajay Bhushan Pandey said with effect from January 1, 2021, GST refunds would be paid/disbursed in a validated bank account linked with the PAN and Aadhaar of the registered taxpayer.

The 42nd meeting of the GST Council, chaired by Union Finance Minister and comprising state counterparts, also eased compliance burden for small taxpayers with an annual turnover of less than Rs 5 crore by allowing them to file GST returns on a quarterly basis with monthly tax payments from January 1, 2021.

"Such quarterly taxpayers would, for the first two months of the quarter, have an option to pay 35 per cent of the net cash tax liability of the last quarter using an auto-generated challan," the statement added.

Pandey said the Council has also approved the revised requirement of declaring HSN (Harmonised System of Nomenclature) Code for goods in invoices and in sales return Form GSTR-1 with effect from April 1, 2021.

Taxpayers with a turnover of over Rs 5 crore will have to quote 6 digit HSN or tariff code, while taxpayers with aggregate annual turnover up to Rs 5 crore will have to quote HSN code up to 4 digits for B2B supplies of both goods and services.

Further, to encourage domestic launching of satellites particularly by young startups, the satellite launch services supplied by ISRO, Antrix Corporation Ltd and NSIL has been exempted from Goods and Services Tax (GST) by the Council.

GST Council fails to reach consensus

The crucial meeting of the GST Council on Monday failed to reach a consensus on ways to compensate states as the panel was split on political lines over using borrowing as a tool.

The state compensation issue appears headed for voting in the Council, with the option chosen by majority states being implemented.

Briefing reporters after a marathon meeting of the panel, Nirmala Sitharaman said 21 states had opted for one of the two options the Centre had previously suggested for borrowing to meet the shortfall in GST collections.

But some states did not opt for any of the two options, and the Council decided for more deliberations, she said, adding the panel will meet again on October 12.

Kerala Finance Minister Thomas Isaac said 10 states, mostly ruled by Congress and Left, want the Centre to borrow and give the money to states.

When the GST was introduced in July 2017, states were promised a 14 per cent incremental revenue over their last tax receipts in the first five years of GST rollout. This was to be done through a levy of a cess or surcharge on luxury and sin goods, but the collections on this count have fallen short with the slowdown in the economy since last fiscal.

To make up for this, the Centre suggested that the states can borrow against future compensation receipts.

Sitharaman said that some states wanted that the Centre calculates the GST shortfall amount at Rs 1.10 lakh crore, instead of Rs 97,000 crore. This was agreed to by the Centre before the 42nd meeting of the Council.

The Centre in August gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

The non-BJP ruled states are at loggerheads with the Centre over the issue of funding the shortfall. Chief Ministers of 6 non-BJP ruled states West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu, have written to the Centre, opposing the options which require states to borrow to meet the shortfall.

"So the question was it could be that 20 states would have chosen Option 1, but there are some of us which have not chosen any. And from those which have not chosen any, the argument was it is the Centre which borrows... It was felt that you can't decide on the basis of 21 which have written to you, we need to talk further.

"I was also gently reminded that I can't take anybody for granted. I don't take anybody for granted, I have said this there and I am saying it here. I have always been open for more and more talk which is what I have said there and I am saying it here too," Sitharaman said.

Explaining the repayment schedule of the Council, Sitharaman said interest on the borrowed amount would be the first charge on the cess, which gets collected beyond the five years.

The next charge would be 50 per cent towards the principal amount, which gets borrowed that is Rs 1.10 lakh crore and then the remaining 50 per cent would be towards COVID affected compensation.

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