Global Economy

GST Council borrowings for compensation needs to widen general govt debt: Finance Commission


New Delhi: Any borrowing by the GST Council to make good the shortfall in revenue of states would add up to the debt of both the central and state governments, the 15th Finance Commission chairman, N K Singh, said on Friday. “My understanding of the Constitution is that the borrowing of the central government is upon the security of the Consolidated Fund of India. Borrowings by the state governments are upon the security of the consolidated fund of the state.

“Now whether you have other entities which borrow, whatever the picture is, as far as any kind of borrowing is concerned, it must ultimately reflect itself upon the debt of the general government,” Singh told reporters here.

In the previous council meeting on June 12, 2020, Finance Minister Nirmala Sitharaman had said that a special meeting will be called next month to discuss state’s compensation issue.

In March, it was decided that the Centre will look into the legality of GST Council borrowing from market to meet the compensation requirements. With states raising the issue of shortfall in compensation kitty, there were discussions on resorting to market borrowing to meet the revenue guarantee to states.

“Whatever be the modality, you cannot escape the reckoning of the debt in the debt of the general government,” Singh added.

Under GST law, states were guaranteed to be paid for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.





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