Bridging the gap: Centre may borrow to meet GST shortfall; rate increased on mobile handset

Shishir Sinha New Delhi | Updated on March 15, 2020 Published on March 14, 2020

Finance Minister Nirmala Sitharaman   -  PTI

The Centre is mulling borrowing from the market to compensate States in the event of a GST revenue shortfall. In the meantime, the GST Council has decided to hike the levy on mobile handsets and hand-made matches, while lowering it on Aircraft Maintenance, Repair & Overhaul (MRO) services.

Total collection from GST Compensation Cess stood at over ₹78,000 crore, while the total compensation payout is more than ₹1.20 lakh crore during the current fiscal year.

Finance Minister Nirmala Sitharaman, who is also Chairperson of the GST Council, reiterated that the Centre is maintaining what is stated in law in terms of compensation payout. The law prescribes that the Centre has to pay the revenue deficit to States for first five years from the introduction of GST, if growth of GST revenue collection is less than 14 per cent.

Since, collection from cess is less than what is required to be paid, there is a proposal to borrow from the market. Sitharaman said there are many issues such as guarantees on those borrowings, the rate of interest and the impact on FRBM (Fiscal Responsibility and Budget Management), besides others. 

She said that she would take legal opinion and discuss the matter with the GST Council. There will be a special meeting of the Council to discuss this proposal, which is expected to take place 2-3 weeks after the ongoing Budget session of Parliament.

Rate review

The Council discussed the impact of the inverted duty structure (higher rate on input and lower duty on finished products) and refund on account of it. Sitharaman said there are four key items -- mobile handsets, fertiliser, footwear and textiles. Though it was felt the time is not appropriate to raise duty, after detailed discussions, States favoured raising the GST rate on mobile handsets. Now, the rate will be 18 per cent on mobiles and specified components against 12 per cent now. 

Though the Government expects the revision mainly to remove the anomaly of inversion and says it is not a revenue augmentation measure, there is a feeling that retail prices will rise.

The changes in GST rates will be effective April 1.

Published on March 14, 2020

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