KEY HIGHLIGHTS OF THE 41ST GST COUNCIL MEETING HELD ON 27TH AUG 2020 AT NEW DELHI

The 41st GST Council meeting was held today, 27/08/2020, Thursday with the agenda of compensation for loss of revenue arising from the implementation of GST. The 41st meeting of the GST Council was held via video conferencing.

States are guaranteed full compensation for the first five years of the GST regime in case they fail to record 14 per cent growth in revenues from GST on the base year of FY16.

The compensation requirement by the states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the GST regime. Hence, the total shortfall is estimated at Rs 2.35 lakh crore

The shortfall for the FY 2020-21 works out to be Rs 2,35,000 crore. Out of this, Rs 97,000 crore is the shortfall due to GST implementation, whereas the rest is considered as due to COVID-19, which is an act of god. The states have been provided with two options to meet the shortfall of compensation cess.

OPTION 1: The centre can facilitate Rs 97,000 crore to states as borrowings, through a special window by the RBI, and this can be repaid after 5 years on the collection of cess paying a reasonable rate of interest.

OPTION 2: The other is for states to borrow Rs 2.35 trillion from the market, with the RBI as a facilitator. However, the burden of repayment will not be on states. The timeline for cess imposed on sin and luxury goods will be extended beyond June 30, 2022 (up to which states are Constitutionally guaranteed compensation), to help service the debt.

This means that States can borrow about Rs 97,000 crore -- the deficit arising out of GST implementation -- or the entire Rs 2.35 lakh crore. If states agree to either of the options, it would effectively mean that cess would continue beyond five years of GST rollout

A detailed note on the two options would be shared with the states and they would give their views on it in seven working days.

The Centre has made a distinction between revenue lost due to implementation of the GST and the economic slowdown arising out of the COVID-19 crisis. The government said its legal obligation was only to compensate states for losses arising out of the GST rollout.