New Delhi: The federal indirect tax body, the Goods and Services Tax (GST) Council will examine the legal implications of borrowing from the market to meet the shortfall in funds to compensate states for their GST revenue loss, union finance minister Nirmala Sitharaman said here.

The Central government’s willingness to look into the possibility of the Council borrowing from the market is a major compromise aimed at ensuring that states’ compensation needs are met at a time the general economic conditions have brought uncertainty to revenue collections.

Sitharaman said that the Council on Saturday discussed the revenue position of states and the compensation requirement as well as suggestions that the Council could borrow from the market if there is a shortfall in funds. However, details such as interest payment, loan repayment and the impact on the fiscal position of the government needs to be studied, the minister said.

Sitharaman said the discussion was about what needs to be done, if any, by the Council, if compensation collected by way of GST cess falls short of the compensation to be given to states.

“There were suggestions recalling what Shri Late Arun Jaitley ji had said—there can be ways and means about the Council even borrowing from the market. I am committed to giving compensation as is being collected and as I stated. However, post the Parliament session, with a couple of weeks given to me, I shall look at how, if at all, the Council should be allowed to borrow, who gives guarantee, how will it be repaid, and who will pay the interest. All these have to be legally looked into," Sitharaman said. The minister explained that she will go back to the Council on the issue after securing more information and legal opinion. The minister also said that if the Council members have to borrow, the impact of it on the Fiscal Responsibility and Budget Management Act needs to be studied.

“I said I will call a Council meeting once after a couple of weeks after (the ongoing) Parliament session ends and lay before the council the opinion I get and the council can take a considered view," Sitharaman said.

Sitharaman said that this year, Central government paid ₹1.2 lakh crore to states as GST compensation although cess collected was about ₹78,000 crore. States like Kerala have been urging the union government to borrow from the market to pay GST compensation and extend the GST cess beyond 2022 to raise resources for repaying the debt. Another option discussed earlier was to raise the rate of GST cess levied on items like automobiles. The Council, however, did not think it was wise to raise the rate of cess on automobiles at this juncture considering any adverse impact it could have on consumption.

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