GST compensation: Jharkhand joins GST borrowing scheme

By: |
December 6, 2020 6:30 AM

All 28 states and 3 UTs have now come on board

State to receive Rs 1,689 crore this fiscal in compensation duesState to receive Rs 1,689 crore this fiscal in compensation dues

Jharkhand has chosen Option-1 of the Centre’s borrowing plan to bridge GST revenue shortfall, which will allow the state to receive Rs 1,689 crore this fiscal in compensation dues while also entitling it to unconditionally borrow Rs 1,765 crore as part of incentive for joining the scheme, the central government said on Saturday.

With this, all 28 states and three UTs are now on board for the plan.

Jharkhand was among the 10 states initially opposed to the borrowing plan, but since then other states had come on board. They demanded that full compensated of Rs 1.82 lakh crore should be given instead of a portion (Rs 1.1 lakh crore) that was purely due to GST implementation issue without factoring in the impact of the pandemic.

“All the 28 States and three Union Territories with legislature have decided to go for Option-1 to meet the revenue shortfall arising out of the GST implementation,” the government said after Jharkhand communicated its decision.

The borrowing scheme, under a special window, was operationalised on October 23. The central government has so far borrowed Rs 30,000 crore in five installments, and passed the same to states as back-to-back loans. The total borrowing under the scheme is fixed at Rs 1.1 lakh crore, which is the shortfall attributed to GST implementation issues.

“The next installment of Rs 6,000 crore will be released to the states/union territories on December 7,” the government said.

The Option-1 of the scheme also grants states unconditional permission to borrow the final installment of 0.5% of GSDP of the 2% additional borrowings permitted by the central government. This amounts to a little over Rs 1.05 lakh crore in the current fiscal for all the states, and is over and above the special window of Rs 1.1 lakh crore. The GST Council had earlier amended the law to extend the tenure of the compensation fund, which was due to lapse in 2022 —five years after the launch of GST. This collection in the fund will be first used to pay the interest and principal of the loan, after which the proceeds will go to the states for covering up the unmet shortfall of the current year.

The central government has estimated Rs 1.1 lakh crore as GST shortfall for states this fiscal from the level of protected revenue guaranteed to them under the law. States are assured of 14% year-on-year growth in GST revenue, which is met by their own revenue and any resultant shortfall is made up from cess funds.

The borrowing proposal was presented to states after it became clear that compensation fund, which collects proceeds from cess imposed on goods under GST, was woefully inadequate to meet the protected revenue of the states.

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