The minister, however, ruled out funding the revenue shortfall from the consolidated fund of India, saying the amount has to be paid from the compensation cess kitty.

Nirmala Sitharaman speaks in Lok Sabha during the ongoing Monsoon Session of Parliament
Money GST Saturday, September 19, 2020 - 11:54

Finance Minister Nirmala Sitharaman on Friday said the GST Council will arrive at a common ground on ways to compensate states for loss of revenue, amid opposition charge that the Centre is reneging on its promise of paying compensation.

Replying to a debate on supplementary demands for grants in the Lok Sabha, Sitharaman said she will honour the commitments made by her predecessor Arun Jaitley with regard to the Goods and Services Tax (GST) compensation payout.

"Even if we are in an act of God situation, but we will discuss in the Council how to give compensation to the states... The Council will take a call on how to borrow to meet the (revenue) gap," she said.

The minister, however, ruled out funding the revenue shortfall from the consolidated fund of India, saying the amount has to be paid from the compensation cess kitty.

The states are staring at a Rs 2.35 lakh crore GST revenue shortfall this fiscal. Of this, as per the Centre's calculation, Rs 97,000 crore is estimated to be on account of GST implementation, while the remaining Rs 1.38 lakh crore is due to the COVID-19 pandemic.

The Centre late last month gave two options to states to borrow either Rs 97,000 crore from a special window facilitated by the RBI, or Rs 2.35 lakh crore from the market and also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

On the opposition charge that the government is reneging on its commitment of compensation payment by terming COVID-19 an 'act of God', Sitharaman said, "It is an irresponsible comment towards a responsible government, led by Prime Minister Narendra Modi."

Chief Ministers of six non-BJP ruled states -- West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu -- have written to the Centre opposing the options which require states to borrow to meet the GST shortfall.

Sitharaman further said, "We are ready to discuss. We are taking everyone together and Council will find a view. This is my optimistic expectation. The Centre is not reneging (from its commitment)."

Taking on the opposition for ridiculing her remark that COVID-19 is an 'act of God', she said it would have been acceptable if she had said 'force majeure'.

She said the Centre has given states their due share in devolution even at the time of COVID-19 when the Centre's finances are stressed.

Without naming the UK, the minister said a nation which has given 15 per cent fiscal stimulus is now planning to raise taxes.

"We are not contemplating on increasing taxes to make up for what we gave (as stimulus)," Sitharaman said.

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