From Our Special Correspondent
Daijiworld Media Network
Bengaluru, Sep 2: Expressing happiness at the Centre’s decision to concede "the rights of the states with respect to their entitlement of entire compensation due under GST" and "recognise and accept the same while agreeing that the arrears of compensation during the transition period would be met by extension of the Cess beyond 2022 if so decided by the GST Council," Karnataka has decided to choose the Option 1 suggested by Union Finance Minister Nirmala Sitharaman during the deliberations of the GST Council.
The Option 1, suggested by the Union Finance Minister provides for compensating the losses to the state following the implementation of GST.
The Government of India provided two options with a view to enabling the states to give their preference and views on GST compensation. states could either choose Option 1 (shortfall arising out of GST implementation) or Option 2 (shortfall arising out of GST implementation including COVID impact) and accordingly their compensation, borrowing, repayment etc, will be dealt with.
Under Option 1, Karnataka would be eligible for total compensation of Rs.18,289 crore. Out of this Rs.6,965 crore would come from the cess collected. For the remaining amount of Rs 11,324 crore, Karnataka would be able to borrow through a special window with the entire burden of principal and interest repayment being met out of compensation cess fund in the future.
Further, an additional borrowing up to 1 per cent of GSDP (Rs 18,036 crore) will be available unconditionally and another 1 per cent borrowing can be done linked to certain reforms as earlier suggested by Government of India within the timelines given as per the Government order of May 17, 2020. These additional borrowings may also be carried forward to the next financial year if necessary.
Under Option 2, Karnataka would be eligible for total compensation of Rs 25,508 crore. Out of this Rs.6,965 crore would come from the cess collected. For the remaining amount of Rs 18,543 crore would be allowed to borrow through an issue of market debt.
However, in this option unconditional borrowing of 1 per cent of GSDP (Rs 18,036 crore) will not be separately available to the state.
As a result, the net borrowing of the State will reduce substantially by an amount of Rs.10,817 crore. Further under Option 2, the interest on the above borrowing through the issue of the market debt shall be paid by the State from its own resources.
In pursuance of 414 GST Council meeting the Government of India provided two options with a view to enabling the States to give their preference and views on GST compensation. States could either choose Option 1 (shortfall arising out of GST implementation) or Option 2 (shortfall arising out of GST implementation including Covid impact) and accordingly their compensation, borrowing, repayment etc., will be dealt with.
After the evaluation of both these options, it is felt that Option 1 would be more beneficial to the state's finances. Hence, the Government of Karnataka has decided to convey to the Government of India its preference for Option 1. This would help the State in augmenting its revenue in the present financial year, as per the State Government’s decision that will be conveyed to the GST Council.
The Text of the Press Statement issued by the Government is:
"We are happy to note that the rights of the states with respect to their entitlement of entire compensation due under GST have been recognised and accepted by the central government. The arrears of compensation during the transition period would be met by the extension of cess beyond 2022 if so decided by the Council.
Under Option I, Karnataka would be eligible for total compensation of Rs 18,289 crore. Out of this Rs.6,965 crore would come from the cess collected. For the remaining amount of Rs.11,324 crore, Karnataka would be able to borrow through a special window with the entire burden of principal and interest repayment being met out of compensation cess fund in the future. Further, an additional borrowing up to 1 per cent of GSDP (Rs l 8,036 crore) will be available unconditionally and another 1 per cent borrowing can be done linked to certain reforms as earlier suggested by Government of India within the timelines given as per the Government order F.No.40 (06)/PF-S/2017- 18/Vol.V dated 17h May 2020. These additional borrowings may also be carried forward to the next financial year if necessary.
Under Option 2, Karnataka would be eligible for total compensation of Rs 25,508 crore. Out of this Rs.6,965 crore would come from the cess collected. And for the remaining amount of Rs 18,543 crore would be allowed to borrow through an issue of market debt. However, in this option unconditional borrowing of 1 per cent of GSDP (Rs 18,036 crore) will not be separately available to the State. As a result, the net borrowing of the State will reduce substantially by an amount of Rs 10,817 crore. Further under Option 2, the interest on the above borrowing through the issue of the market debt shall be paid by the State from its own resources.
After the evaluation of both these options, it is felt that Option 1 would be more beneficial to the state's finances. Hence Government of Karnataka has decided to convey to Government of India its preference for Option 1. This would help the State in augmenting its revenue in the present financial year.’’