IAS Gyan

Daily News Analysis

GST Council fails to reach consensus on compensating States

7th October, 2020 Economy

Context: The Goods and Services Tax (GST) Council failed to iron out differences between Opposition-ruled States and the Centre over the plan to get States to borrow from the market to meet an estimated ₹2.35 lakh crore shortfall in compensation cess collections this year.

  • The Council did agree to extend the levy of compensation cess under the GST regime, beyond the five-year period up to June 2022 as originally envisaged.
  • The cess collections will be used to repay borrowings to be made this year for meeting the compensation shortfall, and will remain “for such period as may be required to meet the revenue gap”.

Immediate funds

  • Centre decided to release ₹45,000 crore of GST dues to States by next week to help them meet immediate spending needs amid the pandemic.
  • This includes ₹20,000 crore of GST compensation cess collected so far in 2020-21.

Goods & Services Tax Council

  • It is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
  • The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
  • The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2016, for introduction of Goods and Services tax in the country was introduced in the Parliament and passed by Rajya Sabha on 3rd August, 2016 and by Lok Sabha on 8th August, 2016.
  • GST Council, is a joint forum of the Centre and the States, shall consist of the following members: -
    • the Union Finance Minister................................................................ Chairperson;
    • the Union Minister of State in charge of Revenue or Finance................. Member;
    • the Minister in charge of Finance or Taxation or any other
    • Minister nominated by each State Government...................................... Members.
  • As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc.