GST: Karnataka to go with first of the two options offered by Centre

State will be eligible for a total compensation of ₹18,289 crore.

The Karnataka government on Wednesday decided to opt for the first of the two options offered by the Centre of borrowing to meet the shortfall in the goods and services tax (GST), under which the State will be eligible for a total compensation of ₹18,289 crore.

The decision was taken after Chief Minister B.S. Yediyurappa, who also holds the finance portfolio, held discussions with Finance Department officials.

“After the evaluation of the two options, it is felt that option one would be more beneficial to the State’s finances,” an official release from the government stated. It said this would help the State augment its revenue in the 2020–21 financial year.

Under option one, Karnataka would be eligible for a total compensation of ₹18,289 crore, of which ₹6,965 crore would come from the cess collected. For the remaining ₹11,324 crore, the State would be able to borrow through a special window with the entire burden of principal and interest repayment being met out of the compensation cess fund in the future, it said.

Further, an additional borrowing of up to 1% of the GSDP (₹18,036 crore) will be available unconditionally and another 1% borrowing can be linked to certain reforms as suggested by the Centre.

Under option two, the State would have been eligible for a total compensation of ₹25,508 crore, out of which ₹6,965 crore would come from the cess collected. The remaining amount of ₹18,543 crore would be allowed to be borrowed through an issue of market debt.

However, in this option, unconditional borrowing of 1% of the GSDP would not be separately available to the State, as a result of which the net borrowing will reduce substantially by ₹10,817 crore, the release explained. Further, under option two, the interest on the borrowing through issue of market debt is to be paid by the State from its own resources, it added.

During the GST Council meeting last week, the Union government wrote to States suggesting options of borrowing money to make up for the ₹2.35 lakh crore shortfall in the GST expected in the ongoing fiscal.

The Centre has estimated that of this amount, ₹97,000 crore compensation requirement is owing to GST rollout and the remaining is on account of the COVID-19 impact on the economy.

Giving two options, the Centre had said States can borrow either ₹97,000 crore deficit arising out of GST implementation or the entire ₹2.35 lakh crore.

Non-BJP ruled States have rejected the Centre’s suggestion of States borrowing to make up for the GST shortfall, saying the Constitutional liability lies with the Centre.

Home Minister Basavaraj Bommai, who represented the State in the GST Council, said Karnataka has to get ₹13,764 crore GST compensation from the Centre for the last four months.

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