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economy | IST

GST Compensation issue: No vote needed on borrowing, say sources

Mini

The entire debate came to the fore in August 2019 as centre started informing the council about the shortage of funds in the compensation cess kitty.

As conclusion eludes the GST Council to form a consensus on the option of borrowing to make good for the shortfall in the compensation cess kitty, borrowing by states does not require the approval of the GST Council, and so the issue does not need to be put to vote, sources told CNBCTV18.
Sources said that when it comes to exercising the option of voting on the contentious issue of whether the centre should borrow or states and if states borrow then which should be a preferred option to make good for the shortfall of funds under the compensation cess kitty, then, in this case, the GST council cannot go for voting.
“The issue of borrowing is not a GST council matter or is not something which is under the jurisdiction of GST council. GST Council has jurisdiction to extend the levy of cess to compensate for the shortfall in the compensation. It has done that. Now the ball rests in the court of individual states, not the GST council,” sources said.
Sources have ruled out the option of voting since “borrowing is not an issue under the jurisdictional powers of the GST Council” and rather it is “Article 293 of the Constitution that empowers each individual state to borrow.”
The entire debate came to the fore in August 2019 as centre started informing the council about the shortage of funds in the compensation cess kitty. States with the rollout of GST were promised by centre for 14 percent of guaranteed revenue for 5 years till June 2022.
Since August, centre and states have been discussing in the GST council about several ways and means to increase revenues in the compensation cess kitty. According to the GST Act provisions, it is only through the collections under the compensation cess kitty, is how the states can be compensated and in case of shortage of funds, the council has to come up with a possible solution.
It was in the 42nd GST Council meet on 5th October, when even after 8 hours of deliberations a consensus could not be achieved on the borrowing issue to deal with the shortfall of funds in the compensation cess kitty to pay off the states.
Also in the 42nd GST Council meet centre agreed to enhance the borrowing limit proposed in option 1 from Rs 97,000 cr to Rs 1.10 lakh crore based of 7% revenue growth.
The two options for borrowing were given to the states in the 41st GST Council meet where centre had said that states can choose from two options – Option 1 a combination of relaxation of 0.5 percent in FRBM limits and Rs 97000 cr of borrowings and Option 2 – where entire Rs 2.35 lakh crore of borrowings to be made by states for the shortfall of funds in the compensation cess kitty for the current fiscal.
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