GST Council meeting postponed to October 5: Sources

The Goods and Services Tax (GST) Council next meeting has been postponed to October 5, said two sources directly familiar with the matter.

The Council was earlier supposed to meet on September 19, to take up rate rationalisation and also the more burning issue of compensation cess to states.

“The 42nd GST Council Meeting is rescheduled and now will be held on 5th October,” said one of the sources.

The issue of compensation to states may be taken up in Parliament that is due to begin September 14, following which another round of discussions between the Centre and the states is likely, another source said.

The Council has earlier met on August 27 to solely discuss the issue of compensation shortfall to states and ways to meet the deficit.

The Centre had proposed that states borrow, and put forth two options for the states to consider which included borrowing from market or through a special Reserve Bank of India window, to meet the deficit.

In the first option, states will have to borrow Rs 97,000 crore from a special central bank facility to make up the shortfall due to the transition to the GST regime, with repayment of the principal and interest to be serviced by the compensation cess. In this option, additional 0.5 percentage point relaxation in the state’s Fiscal Responsibility and Budget Management (FRBM) limit beyond the existing allowance, will be permitted.

In the second option, states will have to borrow Rs 2.35 lakh crore, the estimated shortfall on account of the GST transition and the Covid-19 induced slowdown, from the market, facilitated by the Centre and RBI. However, the states would bear the interest burden while the principal would be serviced by the compensation cess, which is levied on sin and luxury products such as cigarettes and specified categories of automobiles. The FRBM limit relaxation is not available in this option.

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Many states have written to the Prime Minister seeking his intervention. Several Opposition led states have rejected the proposals while some BJP led states have chosen the first of the two options, paving way for a split in the GST Council which has taken decisions basis consensus from all states.

The exception, that is voting, has only happened once since the Council was formed in 2017, when the rate for lotteries was decided in December 2019.



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