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GST Council to meet on August 27 to discuss compensation payout to states

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New Delhi: The Goods and Services Tax (GST) Council will hold its next meeting on August 27, where it is likely to discuss critical issues of compensation to states and market borrowing for meeting the gap in compensation, following a legal opinion.

The Council is also likely to take up the attorney general’s view that the Council can decide on raising funds from the market for compensating states, in case of revenue shortfall, and may also ask states to raise funds on their own.

People aware of the development said that the meeting will be solely held for resolving the burning issue, which has had many states seeking compensation payments due for the ongoing financial year from the Centre.

“This meeting will be on compensation issues, for all other issues, another meeting will be held next month,” said one of the people, asking not to be named. The 42nd meeting of the Council will take place on September 19, via video conferencing, another person said.

States are likely to propose additional measures to raise funds such as bringing more products such as tobacco and cigarettes, and other goods used predominantly by the rich under the compensation cess ambit.

Raising the rates for compensation cess from present levels to factor in inflation and restoration of wrongly diverted integrated GST for 2017-18 are among other measures that may be discussed.

States have previously suggested that the Council should borrow and loan to states, because borrowing for states will attract higher rates. As per an SBI Research report, states have already borrowed over 50% more from the markets for the ongoing financial year than the amounts borrowed in the previous financial year.

Compensation to states has to be paid over a five-year transition period–starting July 1, 2017 when GST was rolled out–for any potential loss in revenue due to implementation of the tax. Compensation is paid from the GST Compensation Fund through cess imposed on certain items. Increasing the period of payment to states beyond five years may also be discussed to meet the shortfall.

For 2019-20, the Centre has paid Rs 1.65 lakh crore as compensation to states. However, due to the impact of Covid-19 on the tax revenue, it may not be able to meet the requisite levels of compensation to states, the government told a parliamentary panel.

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