States has to wait till 2022,if won’t choose centre’s options for compensation

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Approximately ₹1.5 lakh crore as GST compensation is pending to states for the period April-July, 2020, as the cess collected in the current financial year was insufficient to pay the dues.

Any state that does not choose one of the borrowing options offered by the Centre to compensate for the revenue loss on account of goods and services tax (GST) transition may have to wait till June 2022 to get compensation.

As many as 21 states have backed the first option, entailing ₹97,000 crore borrowing, more than the requisite number needed to pass a resolution in the GST Council, if it is put to vote. The Centre had offered two borrowing options to the states at a specially convened Council meeting on 27th August 2020.

In the first option, the borrowing amount is equivalent to revenue loss estimated on account of GST transition that can be borrowed from a special central bank facility. Principal and interest in the first option is to be serviced by the compensation cess. In the second option, states will have to borrow ₹2.35 lakh crore, entailing revenue loss due to GST transition due to Covid-19 lockdown from the market, facilitated by the Centre and RBI. However, the states would have to bear the interest burden in these options.

Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh have opted for borrowing ₹97,000 crore.Manipur, which had earlier chosen the second option of borrowing ₹2.35 lakh crore, changed its preference to the first option. 

Opposition led states of Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal have rejected both options and have sought the Prime Minister’s intervention. If they won’t choose any option, they may have to wait till 2022 or beyond that for compensation. 

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