Ajit Singh

The Shiv Sena-led Maha Vikas Aghadi government, at the Goods and Service Tax (GST) Council on Monday, formally disclosed that it will accept the Finance Ministry’s Option 1 for GST relief. Under this option, the entire principal and interest will be paid out of the compensation cess on cars, soft drinks, pan masala, tobacco and coal, which will be extended beyond the current deadline of June, 2022.

The Finance Ministry had said that the states that opt for this will get loans at a specially arranged rate and the debt will not be added to their balance sheet, giving them room to borrow more in the coming years. Under this option, states can borrow Rs 97,000 crore from a special window facilitated by the government. The interest burden and repayment will be borne out of the cess collections and the borrowing from the special window will not be treated as a debt of states.

Free Press Journal broke the state government’s move on September 8.

As per the state government’s estimates, there will be a GST shortfall of Rs 40,000 crore in 2020-21. Under Option 1, the state government can get Rs 16,000 crore, while it will have to borrow another Rs 30,000 crore from different sources.

Further, the state government also supported the extension of the GST compensation cess levy beyond 2022. As per the GST Act, states are guaranteed compensation for any revenue shortfall below 14 per cent growth (base year 2015-16) for the first five years ending 2022. GST compensation is paid out of the compensation cess every two months by the central government to the states.

Minister of Water Resources Jayant Patil, who represented the MVA government at the GST Council meeting in the absence of Deputy Chief Minister Ajit Pawar, revealed the government’s move to opt for Option 1. Patil, however, reiterated the state government’s argument that, in the present economic downturn and coronavirus pandemic, the central government should borrow the money and distribute it to the states that are passing through a major financial crisis. After the central government rejected the state’s proposal, it was agreed to accept Option 1.

The state government’s move comes at a time when the DCM Ajit Pawar, who holds the finance and planning department, had repeatedly urged the central government to clear arrears worth Rs 22,534 crore as of July, 2020. He had further warned that if there will be further delays, the dues will go up to a record Rs 1 lakh crore in two years.

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