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GST Council fails again to reach agreement on contentious issue of borrowings

13 Oct 2020 Evaluate

The stalemate over compensating states for the shortfall in Goods and Services Tax (GST) collections continued with a meeting of the GST Council ending without reaching any consensus. The panel, which is the highest decision-making body on indirect taxes, for the second time in a week failed to reach a consensus on the Centre's proposal of states borrowing against future GST collections to make up for the shortfall.

This was the third meeting in a row that discussed compensation shortfall without a decision. Finance Minister Nirmala Sitharaman, who heads the Council, said the Centre cannot borrow and pay states for the shortfall as it would lead to rise in bond yields, resulting in rise in borrowing costs for the government and the private sector. However, she said this would not be the case if states borrowed against future GST receipts. She added that 21 states had agreed to borrow as suggested by the Centre. However, other states insisted on a decision to be taken by consensus.

In its last meeting on October 5, the GST Council had decided to extend the surcharge on taxes on luxury goods such as cars and tobacco products beyond June 2022 but failed to reach a consensus on ways to compensate states for loss of tax revenue.

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