The Centre may offer a special package to states to tide over financial difficulties as the compensation regime for the Goods and Services Tax (GST) ends by June 2022 after the agreed five-year period.
The Council may discuss the special package in the next meeting and include financial assistance for specific projects, flexible borrowing options, and permission for a special levy.
States were guaranteed to pay compensation for any loss of revenue for the first five years due to the GST rollout. However, Union Finance Minister Nirmala Sitharaman had remained in the Parliament that the compensation period would end in June 2022.
Meanwhile, the sources said that the government is aware of the financial difficulties of a few states, especially hill states, and a few states requested a special levy. The government is working on measures to support them in response to these, which the Council will discuss in the next meeting.
The Centre is also taking Niti Aayog’s assistance to help revenue-deficit states identify projects and sectors to shore up revenue collections. Even though there is an exceptional improvement in total GST collection, there’s a 2% to 23% difference in collections in large states. The government has to analyse these differences before finalising the package.
The opposition-ruled states, including Tamil Nadu, Chhattisgarh and West Bengal, have demanded to extend the compensation period. Also, the BJP-ruled states, Uttarakhand, and Himachal Pradesh have requested to extend the compensation period beyond 30th June 2022.
Most hill states are increasing their dependence on the Centre due to a lack of sources. Even though a temporary GST levy could help them meet financial difficulties, they are usually avoided due to distorting the tax structure.
For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in
DVSR Anjaneyulu known as AJ, is a Chartered Accountant by profession. Loves to listening to music & spending time with family and friends.
