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Finance Secretary Hinted for Another GST Compensation Package for States

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The finance ministry will have to work out details of a GST compensation package for the states in the next financial year as collections from cess may fall short of the requirement even in 2021-22, finance secretary Ajay Bhushan Pandey said.

Speaking to a select group of mediapersons in a post-budget interaction Pandey said though there will be a gap in GST compensation in FY 22 as well, it would actually be lower than the current year.

The finance ministry offered a borrowing option to states to compensate for cess revenue in the current fiscal. This option allowed states to meet GST compensation shortfall of Rs 1.1 lakh crore estimated for FY21 accruing due to sharp fall in GST and cess collections during the period of Covid- induced lockdown and slowing of the economy.

GST Compensation Outlook For States

As the Centre is bound by GST Act to compensate states for the revenue shortfall in the first five years of GST launch in 2017, and compensation cess collections became inadequate in the pandemic year to meet Centre’s obligation, the finance ministry proposed to allow states meet their shortfall of compensation through additional borrowing made by the Centre at a lower rate of interest. All states facing compensation shortfall have opted for borrowing option in FY21.

“Decision will be taken later on how to compensate states for FY22 shortfall as the borrowing mechanism offered to states in lieu of compensation is only for FY21 shortfall,” Pandey said.

The GST collections have shown marked improvement in [past four months with January collections reaching all time high levels of Rs 1.20 lakh crore.

Pandey, who is also the revenue secretary, said that that the projections of revenue in the Budget have been made keeping in mind another wave of Covid, if it happens.

“GST estimate for FY22 decided keeping in mind the pandemic,” Pandey said.

GST Issue in Union Budget 2021

The Budget 2021-22 has pegged Centre’s revenue from GST at Rs 6,30,000 crore, a 22 per cent growth over the revised estimate for FY21 at Rs 5,15,100 crore. It is lower than the FY21 budget estimate of Rs 6,90,500 crore.

The finance secretary said that discussions on GST on auto components, tax slabs were deferred due to Corona and it will now happen in FY22 when the Council meets again.

He said that tax revenue targets given in the budget were realistic and they have taken the possibility of pandemic spike into account while drawing them.

While gross tax collections were down 6.7 per cent as on January end, Pandey said decline in collections expected to narrow further.

On customs duty increases in the Budget, Pandey said that the changes address inverted duty structure anomalies.

The finance secretary said that any tinkering of corporate taxes were not desirable as stability of tax rates is good for the economy.

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