Behind the curve: On GST compensation to States

# Meeting for the second time since the pandemic took hold in the country, the GST Council, last Friday, decided to relax late fees and interest payable for those taxpayers failing to file returns on time.

# For businesses with no tax liabilities under the indirect tax regime, the late fees were completely waived.

# This is in line with similar relaxations announced by the Centre in March, before the lockdown was declared, to ease compliance deadline worries of small businesses in particular.

# But given the extent of economic damage as well as the States’ fiscal positions in the period between these two meetings of the Council, its decisions are far from sufficient.

# In March, GST collections had slipped to ?97,597 crore after surpassing the ?1-lakh crore mark over the previous four months, and the numbers for April and May will not be known before July.

# Finance Minister Nirmala Sitharaman has told State representatives in the Council that just 45% of the indirect tax target had been met in the past two months.

Demands of the states

# It is for this reason that several States have been urging the Centre to extend emergency fiscal support and release past GST compensation dues enshrined in the pact that allowed the new tax regime to take off three years ago.

# In its stimulus package, in May, the Centre enhanced States’ power to borrow, but only part of that was completely unconditional, and a large chunk was contingent on States undertaking specified reforms.

# GST compensation (for revenue shortfalls in the first five years of GST) due to States for December 2019 to February 2020 was only released on June 4.

# Centre-State ties could turn more fractious, especially in the GST Council where things have usually evolved with consensus so far — thanks to the failure to finalise the way forward for paying States the compensation.

# One of the ideas on the table, officially discussed for around two months, is to raise loans against future GST cess accruals in order to recompense States.

# Any decision on this front, along with proposed GST rate rationalisations in the textiles, footwear and fertilizers sectors that were on the Council’s agenda, can now only be expected at a special meet in July.

# Procrastination is not an appropriate response at this arc of the curve — be it the pandemic or the economy.

Source: TH

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