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Kerala takes a soft stance on GST issue after central government’s decision to take loans

Union Finance Minister Nirmala Sitharaman said that the Central Government has borrowed Rs 1.1 lakh crore from the market, a few days after the Kerala government to discuss a legal alternative to resolve the Goods and Services Tax (GST) compensation cess issue. Canceled their high-level meeting. On behalf of the states and pass them on as loan only.

The move indicates that the Kerala government – one of the seven disgruntled states that objected to the Centre’s previous lending options to meet the GST shortfall and threatened to knock the Supreme Court on the matter – It is softening its stand on this issue.

Hindustan Times Reported On Saturday that the Center agreed to borrow 1.1 lakh crore rupees from a special window of the Reserve Bank of India (RBI) and lend it to the states, some of the seven states that disagreed with the initial plan can now sign it. The central government’s move, which was announced on Saturday, is expected to address the primary concern of paying higher interest costs if states have to approach the market individually.

“CMs of Kerala hold scheduled high-level meetings to discuss the vision of the Scheduled Castes [Supreme Court] On GST issue, in light of new initiative by Union FM. Kerala finance minister Thomas Issac said in a tweet on Saturday, “Whose question are we settling for borrowing, we hope to see how much she will borrow through negotiations with the state’s FM.”

A Central Finance Ministry official said that the Center and the GST Council, the apex federal body for indirect tax, are open for discussion. “Members can raise any issue in the Council which will be discussed. But, preventing interested states from borrowing was not possible under Article 293, ”the official said requesting anonymity.

On 27 August, the Center gave states the option of indirect tax (which arises) to the tune of Rs 97,000 crore (a shortfall arising from GST implementation issues) or the entire estimated Rs 2.35 lakh crore revenue without paying principal or interest. . Estimated for this financial year) from the Kovid-19 epidemic. An amount of Rs 97,000 crore was later reduced to Rs 1.1 lakh crore on 5 October.

Some states objected and urged that the Center pay the loan. While 10 states originally opposed the plan, the number dropped to seven by Wednesday, with some saying they would consider legal options. The seven dissatisfied states were: Chhattisgarh, Jharkhand, Kerala, Punjab, Rajasthan, Telangana and West Bengal. The official said that Puducherry had earlier indicated its preference for the lending option, but the expenditure department is yet to receive formal communication.

The official said that all states would eventually agree as there is “no dispute” and the GST Council is committed to resolving “all differences”.

He said, ‘A loan of Rs 1.1 lakh crore is in progress, which will help the cash deficient states. Meanwhile, GST collections are expected to improve in the coming months. This will not only reduce the revenue deficit, but will also increase the compensation cess collection. Review of financial position in the council after the third quarter [December] Significant reduction in the need for further borrowing can be observed. This is a dynamic situation and will be reviewed, ”the official said. HT reported it on Saturday.

The GST Council is a federal body chaired by the Union Finance Minister, and whose members include the Finance Ministers of the states. It is the body that decides the tax rates and other issues related to GST. Until its recent controversy, all its decisions had come on a consensus basis.

A state government official requesting anonymity softened the stance of some disgruntled states about compensation cess to states following Sitharaman’s letter on Thursday after the Center’s decision.

Sitharaman wrote to the states on Thursday, “I am also sensitive to the fact that states need to be protected from the ill effects of high lending apart from interest liability and loans. Under Option-I, the central government will arrange the lending in such a way that The cost will be at, or close to, the central government interest rate. “

The finance minister’s letter said that the central government is facing very serious budget-related problems. “The long-term macroeconomic stability is the responsibility of the center; But it is also in the interest of those states who are partners in our system of cooperative federalism. Sitharaman has written that the central government has a different opinion on this macroeconomic issue that taking loans on the books of the Center will not be optimal in the national interest.

Commenting on the single window lending mechanism announced on Thursday, he said, “We have now worked on some key aspects of the special window. Based on the suggestions of several states, it has now been decided that the central government will initially receive the amount, and then pass it on back-to-back as a loan to the states. This will, in addition to ensuring a favorable interest rate, ease coordination and ease of borrowing. ”

It assured the state governments that the entire arrears of compensation would “eventually” be paid to the states. She thanked the states for their “collaborative” approach which resulted in a “constructive and practical solution” to the issue of compensation cess.


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