41st GST Council meeting outcome : Key highlights dated 27th August, 2020

The 41st GST Council met under the Chairmanship of Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman via video conferencing today i.e. 27th day of August, 2020. Shri Anurag Thakur and Finance Ministers of States & UTs and Senior officers from Union Government & States were present.

In 41st GST Council Meeting it has been discussed that the shortfall for the Financial Year 2020-21 will be Rs 2,35,000 crore. Out of this, Rs 97,000 crore is the shortfall due to GST implementation, whereas the rest is considered as due to COVID-19.

EXPECTATIONS:

  • issues such as compensation to states and GST rates revision.
  • issues such as compensation to states, revenue shortfall.
  • two-wheeler industry desperately seeks GST rate cut
  • Finance Ministry to examine if sin tax applies to soft drinks
  • Issues such as the Centre should borrow from the market and provide to states as it will get a lower rate and easier access to markets. More so, since Centre has to make good on its promise to states for paying the due compensation.

Goods and services Tax

41ST GST COUNCIL MEETING KEY HIGHLIGHTS

1. States were given two options to make up for their revenue shortfall amid the Covid-19 pandemic.

  • to provide a special bowrrowing window to states, in consultation with the RBI, to provide Rs 97,000 crore at a “reasonable” interest rate and this money can then be repaid after 5 years by extending cess collection
  • to meet the entire GST compensation gap of Rs 2.35 lakh crore this year itself after consulting with the RBI.

2. The pros and cons of both the options have been discussed also.

  • If the state goes for the first option, it will be entitled to the compensation cess for later years also with support by the centre
  • If the state goes for the second option , there will be involvement of more amount of borrowing that is paid by using the cess collected during the transition.

3. The arrangement will remain valid only for the FY 2020-21. Hence, the GST Council will reassess the situation in April 2021 and decide for the 5th year.

4. The states can borrow money with the G-security linked interest rates without any hurdles.

5. Once the arrangement is approved by the GST Council, the centre will proceed to clear these dues with the help of the RBI and also take care of the rest of the financial years

6. The states must take a decision based on the compensation cess they can expect in the future periods/years.

6. States will also be given a further relaxation in FRBM of 0.5% points for market borrowing.

7. The Attorney General is of the view that compensation needs to be paid to states for five years. But this compensation gap has to be met from the levy of cess.

8. This is not the appropriate time to talk of increases in tax rates.

9. Data analysis:

About Rs 3 lakh crore would be the need of compensation to be paid to states while compensation cess collected would be Rs 65,000 crore. April-July compensation is around Rs 1.50 lakh crore.

10. The GST Council is in planning stage to provide quick update on the level of preparedness of the GSTN in implementing the E-invoicing system from 1st October 2020.

Source- Various News Media and https://icmai.in/upload/Taxation/GST_Council_2808_2020.pdf

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