Bengaluru, Sep 2 (IANS) Karnataka has decided to prefer option 1 for its share of GST compensation from the Central government arising out of revenue shortfall due to the Covid pandemic, an official said on Wednesday.
“The state government has decided to convey to the Central government its preference to option 1, as it will help the state in augmenting its revenue this fiscal (2020-21),” a state finance department official told IANS here.
Under option 1, the state will be eligible for Rs 18,289 crore, and Rs 25,508 crore in option 2.
Out of Rs 18,289 crore under option 1, Rs 6,965 crore will be from the cess collected by the Centre under the Goods and Service Tax (GST).
“The state will be able to borrow the balance amount (Rs 11,324 crore) through a special window, with its principal and interest repayment to be made from the compensation cess fund in the future,” said the official.
As the economy is facing grave crisis due to the coronavirus outbreak since March, Union Finance Minister Nirmala Sitharaman advised the states to borrow from the central bank (RBI) for meeting the GST compensation shortfall at the 41st GST Council virtual meeting held on August 27.
The GST compensation gap is estimated to be Rs 2.35 lakh crore for this fiscal.
Sitharaman proposed two options to the states to choose in a week’s time so that a final decision on the borrowing can be taken by the GST Council.
The first option envisages states collectively borrowing Rs 97,000 crore through a special window of the RBI at a reasonable interest rate.
The second option allows states to borrow through a special window of the RBI the entire GST compensation gap of Rs 2,35,000 crore for this fiscal.
“Under option 1, the state will also be able to borrow up to 1 per cent (Rs 18,036 crore) of the Gross State Domestic Product (GSDP) and another 1 per cent of the GSDP borrowing can be linked to reforms advised by the Centre,” said the official.
“We have decided not to exercise option 2, as unconditional borrowing of 1 per cent of the GSDP will not be available to the state,” said the official.
Moreover, the state’s net borrowing will also reduce by Rs 10,817 crore under option 2. Interest on the borrowing through an issue of market debt will have to be paid by the state from its resources.
The opposition Congress and Janata Dal-Secular (JD-S) had on August 29 urged the BJP government not to go for any option as it has to borrow from the RBI instead of the Centre borrowing.
“Higher borrowing to make up for the delay in the Centre compensating the GST loss will burden the state government with interest payment. It will hurt the state’s credit rating and borrowing capacity,” Congress leader Siddaramaiah said.
As indirect taxes have been subsumed in the GST since its implementation on July 1, 2017, the Centre is bound to compensate the revenue loss being incurred by the states across the country for the first five years or up to fiscal 2021-22.
“The Centre has to pay Karnataka Rs 13,764 crore as GST compensation since April 1. The amount is projected to increase to Rs 27,000 crore by January 2021. Further delay in transferring the dues will hurt the state’s finances,” asserted Siddaramaiah.
JD-S leader and former Chief Minister H.D. Kumaraswamy also said that borrowing by the state to make up for the GST shortfall would affect Karnataka’s financial stability.
“The Centre has dealt a blow to the country’s federal structure by shirking its commitment to compensate the states for the GST revenue shortfall,” said Kumaraswamy.