GST Hit by Covid, 'An Act Of God'

While states are vehemently demanding GST compensation from the Centre, The central government has conveyed that there is a need to factor in the “abnormal situation” due to the coronavirus pandemic, which it described as an “act of God”, indicating that there was no insurance for 14% growth in GST collections during these times. Three years ago, while introducing GST, the Centre had promised to compensate states for “revenue loss”, if collection growth was under 14% in a year. Compensation is a larger issue and the Centre while assuring that it is not going back on its promise, said that it would only be right to enforce the force majeure clause since this is an event triggered by things beyond anyone’s control. It is an ‘act of God’. Data presented at the GST Council meeting on June 12 showed that GST collections had shot up to over Rs 62,000 crore in May — almost twice the level seen in April — but 38% lower than a year ago. A large part of the sequential jump was attributed to payments for April spilling over into May given the extended deadline. In any case, the actual numbers will only be known after a few months as the Centre is not enforcing the payment and filing deadline “While collections during April and May have been around 45% of monthly average (of a shade over Rs 1 lakh crore), is it fair for the states to demand 114%?” “Haven’t their VAT, excise and property tax collections suffered,” . The Centre has, however, agreed to look into the issue of compensating states after finance minister Nirmala Sitharaman suggested in March that the Council could look at the option of market borrowings. A state finance secretary told media that “invoking the force majeure clause” was not provided for in the statutes, although the Centre has made it clear that the GST Council needs to arrange for the compensation.