The GST will be used until March 2026 to repay loans: FM

NEW DELHI: Finance Minister Nirmala Sitharaman said on Friday that the tax on products such as soft drinks, tobacco, coal and cars will be used to repay loans to compensate states for the deficit in the GST (tax on products and services) until March 2026, suggesting that the States’ request to extend the compensation period was a difficult issue.
Sitharaman also pointed to a study by the Reserve Bank of India (RBI), which set the average GST levy at 11.5% against the neutral income rate of 15.5%, which was further indication that resources to compensate states longer than mandated were hard to come by. Over the past four years, the GST Council has reduced tariffs on hundreds of items to provide relief to consumers.
While some states, such as West Bengal, have demanded an extension of compensation for any shortfall – which is a promise of 14% annual growth – the finance minister has made it clear that the law does not provide for compensation. until July 2022. Some of the states, including those led by opposition parties, have recognized that this is a complex issue.
The Center presented estimates of the collection of compensation tax revenue. In this context, various options, as recommended by various committees / forums, were presented. The GST Council deliberated at length on the matter. The GST Council decided to create a GoM (group ministers) to examine the issue of correcting the reverse tariff structure for key sectors, rationalizing rates and reviewing exemptions from the perspective of increasing GST revenue, ”said Minister of Finances in a press release.

While the compensation issue may not have been settled and Friday’s talks may be a starting point, states have argued that they need to be supported for a few more years as the pandemic of coronavirus had left them strapped for cash and full recovery would take at least one more year.
The Covid-19 pandemic forced the central government to borrow in the market to pay compensation to states, whose revenues had been affected and assured growth of 14% was difficult to achieve. This has complicated the problem, as it is also realized that states cannot be allowed to “fall off the cliff” once the current regime is over.

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