GST Council meet ends without consensus, deadlock on compensation continues

Finance Minister Nirmala Sitharaman on Monday said that the goods and services tax (GST) Council could not reach a consensus in the meeting on the issue of compensation. "There was no consensus arrived on a matter on which differences exist. The GST Council can certainly take a call on cess, collection of cess, extending the period of collecting the cess and so on. That was repeatedly reiterated," Sitharaman said while addressing the media after the meeting.

The opposition ruled states have rejected the finance ministry's proposal that the state governments should borrow to meet the shortfall in GST revenue. These states have asked the centre to borrow on their behalf and also demanded the setting up of a dispute settlement mechanism. Sitharaman said that the central government can not borrow to make up for the shortfall. "Centre has issued a borrowing calendar, if I go beyond that to borrow, the G-Sec deals which are used as benchmark for every other borrowing will go up. This will increase borrowing costs for states & private sector too," the finance minister also said.

Twelve states have accepted the GST compensation solution by the central government, even as Sitharaman sought more time to consider demand of nine more states.

The Council, chaired by Sitharaman and comprising state finance ministers, had met today for the third time in a row to discuss the issue of funding the shortfall of GST revenue of states.

In its previous meeting last week, the Council had decided to extend the surcharge on taxes on luxury goods such as cars and tobacco products beyond June 2022, but failed to reach a consensus on ways to compensate states for loss of tax revenue.

The projected total compensation shortfall in current fiscal stands at Rs 2.35 lakh crore. 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 market and had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

Following demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore. As many as 21 states -- which are BJP ruled or have supported it on various issues -- have opted to borrow Rs 1.10 lakh crore to meet the compensation shortfall. The Centre has released Rs 20,000 crore to the states towards compensation shortfall so far in the current fiscal.

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