GST Council Meet Highlights: Nirmala Sitharaman says special window by RBI an option to compensate states

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Updated: August 27, 2020 7:09:18 pm

41st GST Council Meeting Highlights: FM Sitharaman is addressing the media on key decisions taken in today's GST Council meeting.

GST Council meet, states compensation fund, GST revenue, GST shortfall, sin goods, luxury goodsIssues related to tax collections, revenue deficit, and measures to control tax evasion are likely to take the centre stage today.

41st GST Council Meeting Highlights: Finance Minister Nirmala Sitharaman said that centre can facilitate borrowings from RBI but the loans will be in the name of states. FM Sitharaman said that two options were placed before states, including the option that centre will facilitate talking with RBI and help to get G-security linked interest rates so that each state does not have to struggle for loans. She added that the states have requested the government to lay down both options in detail, and give them 7 full working days to deliberate on it and get back. Further, a brief GST Council meeting is likely to be held soon.  The finance ministry also said that if a state goes for Option 1, it will borrow less, but its compensation entitlement will be protected. So, the choice is between i) borrowing less & getting cess later, & ii) borrow more & pay for it using cess collected during the transition period. The GST Council today met for the 41st time amid a heated debate on providing compensation cess to the states. While the promise of the centre of compensating revenue loss below 14 per cent growth till 2022 seems to be a daunting task to fulfil, the states and the opposition party have been consistently raising the issue of a revenue shortfall.

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Highlights

    19:04 (IST)27 Aug 2020
    A tale of two options

    What is interesting is that it appears that the Centre was trying to convey to States that its obligations under the GST Compensation legislation is to make good the loss only to the extent arising out of transition to GST and not due to the pandemic. Though this was not said in so many words. Therefore, the Centre has put the onus on the States to borrow funds with due facilitation and assistance from the Centre at a reduced rate of interest which can be paid back after the period of 5 years from collection of Cess. -- Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co 

    19:02 (IST)27 Aug 2020
    Taxation on TVs above 32 inch in India is one of the highest in the world at 28%

    The current impetus to TV industry in India is a good time to also reconsider the tax structure on TVs. Currently, taxation on TVs above 32inch in India is one of the highest in the world at 28%. But with changing income patterns, televisions are a mass product and not luxury goods anymore. Hence, the government should consider reducing the tax to 18% giving the TV industry a much-needed policy thrust to flourish - Mr. Avneet Singh Marwah, Director and CEO, Super Plastronics Pvt Ltd, a Kodak brand licensee

    19:01 (IST)27 Aug 2020
    States would have had a fair idea of what is coming their way

    The states would have had a fair idea of what is coming their way considering the opinion of Attorney General was clear that the centre is not liable to pay for the compensation. However, the bifurcation of the shortfall as due to GST and due to Covid would have not been expected. The decision making has again been postponed by another 7 working days. However, it is disappointing that the exercise is being done only for the current fiscal when it is obvious that the recovery is not going to be steep and the shortfall would extend to the next fiscal as well. -- Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP

    17:54 (IST)27 Aug 2020
    Extension of cess should be minimal and predefined

    Any decision to extend the cess beyond 5 years in order to fund the present compensation deficit could become a precedent, hence the period of extension of the cess should be minimal and predefined so that the cess does not become a permanent tax: M S Mani, Partner, Deloitte India

    17:51 (IST)27 Aug 2020
    Moving to a market borrowing mechanism would worry businesses that are subject to cess

    Not considering any rate increases to make up for the shortfall in cess is a welcome measure, however moving to a market borrowing mechanism which would extend the tenure of the cess beyond 5 years would worry businesses that are subject to the cess: M S Mani, Partner, Deloitte India.

    17:47 (IST)27 Aug 2020
    Bond yields may heat up if all states rush to market

    If each state rushes to the market, it will heaten bond yields, so we thought it sensible to approach RBI to help us and facilitate the process, whereby all states could possibly get a loan at the same rate - Finance Minister Nirmala Sitharaman

    17:42 (IST)27 Aug 2020
    Repayment of loans will be made through cess collected from 6th year onwards

    Repayment of loans, including interest payments, will be made through the cess collected from 6th year onwards; in no case will the states be burdened as they will not have to tap into other sources of revenue for loan repayment: FinMin

    17:39 (IST)27 Aug 2020
    Now is not a right time to talk about tax increase

    The GST Council agreed that this is not the appropriate time to talk of increases in tax rates - Finance Minister

    17:35 (IST)27 Aug 2020
    Option 1 will lead less borrowing, but compensation entitlement will be protected

    If a state goes for Option 1, it will borrow less, but its compensation entitlement will be protected. So,choice is between i) borrowing less & getting cess later, & ii) borrow more & pay for it using cess collected during the transition period. - FinMin

    17:33 (IST)27 Aug 2020
    Govt to give further relaxation of 0.5% in states' borrowing

    The government will give a further relaxation of 0.5% in states' borrowing limit under FRBM Act as the second leg of Option 1. States can choose to borrow more, beyond the expected compensation itself, since that is the injury caused by the coronavirus - FM Sitharaman

    17:30 (IST)27 Aug 2020
    Options were tailor-made and depends on states' preferences

    There may be some states which may prefer to get the hard-wired compensation rather than going to the market to borrow more. The option was tailor-made considering that states can take a call depending on the compensation they expect to come - Finance Minister

    17:30 (IST)27 Aug 2020
    Options were tailor-made and depends on states' preferences

    There may be some states which may prefer to get the hard-wired compensation rather than going to the market to borrow more. The option was tailor-made considering that states can take a call depending on the compensation they expect to come - Finance Minister

    17:27 (IST)27 Aug 2020
    Two sides of Option 1 given to states

    1st option has two legs:

    1) Centre facilitating states through RBI in getting loans - for that portion arising out of GST implementation

    2) The gap arising in compensation due to the extraordinary situation and Act of God in the form of coronavirus

    - FM Sitharaman

    17:25 (IST)27 Aug 2020
    GST collection in April and May dwindle

    During April - July 2020, total GST compensation to be paid is Rs 1.5 lakh crore, which is because there was hardly any GST collection in April and May- Revenue Secretary

    17:18 (IST)27 Aug 2020
    Enhanced borrowing limit to be linked to specific reforms to benefit poor

    Part of the enhanced borrowing limit for states will be linked to specific measurable feasible reforms, to ensure that poor benefit from reforms such as One Nation One Ration Card, Ease of Doing Business, and power sector reforms: FM Sitharaman

    17:15 (IST)27 Aug 2020
    Tranches of states' borrowings

    An increase of 3% to 3.5% (of state GDP) in states' borrowing limit is unconditional. Next 1% increase to be released in 4 tranches, each one linked with specific reforms. Last 0.5% given when milestones in at least 3 of 4 conditions are achieved: FM Sitharaman

    17:10 (IST)27 Aug 2020
    Brief GST Council meeting may be held again

    States have requested us to lay down both options in detail, and give them 7 full working days to deliberate on it and get back, a brief GST Council meeting may be held again: FM Sitharaman

    17:05 (IST)27 Aug 2020
    Centre to facilitate talking with RBI and help to get G-security linked interest rates to states

    "Two options were placed before states, we told them that we will facilitate talking with RBI and help to get G-security linked interest rates so that each state does not have to struggle for loans," FM Sitharaman

    17:02 (IST)27 Aug 2020
    Compensation options shall be available only for this year

    Once the arrangement is agreed upon by GST Council, we can proceed fast and clear these dues and also take care of the rest of the financial year. These options shall be available only for this year. In April 2021, the Council will review and decide action for 5th year, says FM

    17:00 (IST)27 Aug 2020
    Annual GST compensation requirement estimated around Rs 3 lakh crore

    Annual GST compensation requirement is estimated to be around Rs 3 lakh crore, and cess collection is expected to be around Rs 65,000 crore, leaving us with an annual compensation gap of Rs 2.35 lakh crore. During April - July 2020, total GST compensation to be paid is Rs 1.5 lakh crore, this is so because there was hardly any GST collection in April and May: Revenue Secretary

    16:58 (IST)27 Aug 2020
    No decision on GST rate cut on 2-wheelers in today's meeting

    Even as FM Sitharaman had said that GST on 2-wheelers merits revision, no decision has been taken on it today.

    16:55 (IST)27 Aug 2020
    GST Compensation has to be paid for transition period - from July 2017 to June 2022

    Attorney General said that GST Compensation has to be paid for transition period - from July 2017 to June 2022; revenue has to be protected; and compensation gap to be met from cess fund, which in turn has to be funded from levy of cess: Finance Secretary

    16:54 (IST)27 Aug 2020
    Compensation gap cannot be met from the Consolidated Fund of India

    The Attorney General's clear opinion was that the compensation gap cannot be met from the Consolidated Fund of India. He suggested that the compensation cess levy can be extended beyond 5 years, to meet the shortfall: Finance Secretary.

    16:53 (IST)27 Aug 2020
    Shortfall in compensation due to implementation of GST has been estimated to be Rs 97,000 crore

    Compensation gap which has arisen this year is expected to be nearly Rs 2.35 lakh crore. However, this shortfall is due to the coronavirus as well. The shortfall in compensation due to implementation of GST has been estimated to be Rs 97,000 crore: FinMin

    16:50 (IST)27 Aug 2020
    7-day window for states

    States have requested a 7-day window to think over and get back to the Finance ministry. These options would be available only during the current year, the situation would be reviewed next year and the decision made on what is best for the country: Finance Secretary

    16:48 (IST)27 Aug 2020
    Second option to states from centre

    Option 2 presented to states: Entire GST compensation gap of Rs 2,35,000 crore of this year can be met by the states, in consultation with the RBI: Finance Secretary

    16:47 (IST)27 Aug 2020
    Centre's first option to states

    GST Council gave two options to states

    Option 1 - To provide a special window to states, in consultation with RBI, to provide the Rs 97,000 crore at a reasonable rate of interest, this money can then be repaid after 5 years from collection of cess: FinMin

    16:45 (IST)27 Aug 2020
    GST Collection has been severely impacted

    GST Collection has been severely impacted this year, due to coronavirus. As per GST Compensation Law, states need to be given compensation - Finance Secretary.

    16:39 (IST)27 Aug 2020
    Centre will be left with a gap of Rs 2.35 lakh crore in current fiscal

    For the full annual year, the centre will be left with a gap of Rs 2.35 lakh crore in compensation fund: GST Council

    16:37 (IST)27 Aug 2020
    Centre can facilitate borrowings from RBI

    It has been proposed that the centre can facilitate borrowings from RBI but the loans will be disbursed in the name of states: FM Sitharaman

    16:31 (IST)27 Aug 2020
    Issue of West Bengal's concern on compensation cess not discussed in meeting

    West Bengal Finance Minister's issue on compensation cess to states not raised in meeting: FM Sitharaman

    16:27 (IST)27 Aug 2020
    Ways to mitigate financial crisis discussed in meeting

    GST Council discussed ways to mitigate the financial crisis of states amid the coronavirus crisis.  

    16:24 (IST)27 Aug 2020
    FM begins address

    FM Sitharaman begins press conference after GST Council meeting.

    16:21 (IST)27 Aug 2020
    Taxpayer base has nearly doubled GST roll out

    The taxpayer base has almost doubled since the rollout of GST. The numbers of assessee covered by the GST at the time of its inception were about 65 lakh. Now the assessee base exceeds 1.24 crore: FM Sitharaman

    16:16 (IST)27 Aug 2020
    Moviegoers get major relief with GST

    The tax on cinema tickets, earlier anywhere between 35% to 110%, has been brought down to 12% and 18% in the GST regime: FM Sitharaman

    16:12 (IST)27 Aug 2020
    FM Sitharaman says tax on home appliances fell from 31.3% to 18% due to GST

    Appliances such as fridges, washing machines, vacuum cleaners, food grinders & mixers, vegetable juice extractor, shavers, hair clippers, water heaters, hairdryers, electric smoothing irons, TVs (up to 32 inches) have all seen tax rates lowered from 31.3% to 18% due to GST: FM Sitharaman

    16:03 (IST)27 Aug 2020
    Daily use items are in zero or 5% GST slab

    Most items of daily use are in the zero or 5% slab. The construction of residential complexes saw a steep reduction in rates to 5% in general and 1% for affordable houses. Restaurants were also brought down to 5%: FM Sitharaman

    15:59 (IST)27 Aug 2020
    Cattle feed, aquatic feed, and poultry feed attract nil GST

    Cattle feed, aquatic feed, and poultry feed have all been kept at a Nil rate in GST, as have all kinds of seeds. In other words, these vital inputs in the agricultural process do not attract any tax under the GST system: FM Sitharaman

    15:55 (IST)27 Aug 2020
    GST system significantly brings down tax on chemical fertilizers

    The pre-GST tax incidence on chemical fertilizers was above 10%. (1% excise duty, 2.44% embedded excise duty, about 4% weighted average VAT and 2.5% CST, Octroi, etc.) while in the GST regime all types of chemical fertilisers only attract a 5% tax rate: FM Sitharaman

    15:53 (IST)27 Aug 2020
    Agriculture sector gets concession on GST

    Substantial concessions have been extended to the agriculture sector in GST. On fertilisers, the net tax incidence was halved in GST. On agricultural machineries, the tax incidence has come down significantly from 15-18% to 12% and on certain items from about 8% to 5%: FM Sitharaman

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