The GST compensation to states and Union territories had become a sore point after Covid disrupted businesses since March this year. In August this year, Finance Minister Nirmala Sitharaman had asked the state governments to borrow either the full amount of Rs 2.35 lakh crore (which included Covid relief) or Rs 97,000 crore (which was only GST compensation) from the RBI. The adverse economic impacts of Covid are yet to be reversed but after the 42nd GST Council meeting on Monday, the Finance Minister announced that an amount of Rs 20,000 crore in GST compensation due to state and union territory governments would be released. An additional Rs 24,000 crore of IGST (integrated goods and service tax) would be released to states that received less earlier, by the end of next week. The Finance Minister also said that the
The Finance Ministry also took some far reaching decisions on Monday. From January 1, 2021 small taxpayers will not be required to file monthly returns. Tax payment can be made by them monthly via a challans. The taxpayers whose annual turnover is less than Rs 5 crore will not be required to file monthly returns. Small taxpayers will only file quarterly returns. The GST Council also exempted GST on satellite launches. The GST Council will meet again on Oct 12 to further deliberate on compensating states for GST cess shortfall. Another decision of the Council is to extend surcharge on taxes on luxury items and tobacco products. The GST Council has also decided to extend compensation cess beyond June 2022.
The states of the North East depend largely on the Centre for running their governments and for development projects. Barring Assam, which has had a few industries in the tea and oil sector, none of the six other states are able to generate internal revenue to run their respective governments. The states were not created on the basis of their financial viability but on political considerations. States like Meghalaya that were earning a revenue of over Rs 600 crore from the coal trade had to suddenly lose that income after the National Green Tribunal banned rat hole mining in April 2014 and asked the state to come up with a mining plan. Meghalaya is yet to come up with the mining plan for reasons best known to the powerful coal lobby. Coal is now illegally mined and transported. Hence the state is losing revenue due to it even while illegal transportation of coal carries on unabated for the past six years.
A time may soon come when states would be asked to generate internal revenue or perish if Covid continues to take a toll on the economy.