GST Council May Set Up a GoM on GST Compensation Shortfall

The Goods and Services Tax (GST) Council could consider setting up a group of ministers (GoM) to resolve the issues of borrowings to make up the shortfall in compensation. Apart from the two options provided by the Centre, Punjab asked for a third option which involves the Central Government in making borrowings rather than states taking on the entire burden.

Punjab has written to the Centre, asking for a GoM to resolve the issue. Kerala and Chhattisgarh have backed the demand. The Kerala Finance Minister Thomas Isaac asked to set up a GoM to resolve the issue of borrowing instead of a GST compensation. He also added that the Council can evaluate the option where the Centre can be part of the total borrowing.

The Chhattisgarh minister TS Singh Deo also asked for setting up a GoM to resolve the issue. Mr Deo dismissed the view that the Council is not mandated to vote on borrowing proposals.

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The Council is scheduled to meet next on 12 October 2020 to deliberate on the matter. The government has offered two options to the states to meet the GST compensation deficit. 

1. The Centre will facilitate Rs.1.10 lakh crore to states as borrowings, through a special window by the RBI.
2. The states can directly borrow from RBI to a tune of Rs.2.35 crore.

The GST Council meeting on 05 October 2020 could not decide on these options as ten states and UTs strongly opposed them. 

The GST Council may set up a GoM to consider and address the concerns of the states. This move might also help in getting an amicable solution for the long-pending issue.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in