Attorney General of India KK Venugopal has told the Centre that it must compensate states fully for the loss of Goods and Services Tax revenue during the coronavirus-induced lockdown, Business Today reported on Wednesday. The Centre had sought advice from the attorney general on the matter.

Venugopal has told the Centre that it has to pay full compensation to the states even if there is a shortfall of funds, NDTV reported. Asked by the Centre whether it would have to bear the shortfall of promised funds partly or wholly, Venugopal said that was for the GST Council to decide.

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The Union Ministry of Finance asked the attorney general whether states can borrow based on assured compensation from the GST fund. Venugopal said they can do this as long as they get clearance from the Centre for such borrowing.

The economic loss caused by the shutdown has adversely impacted the Centre’s revenue. However, states, especially those ruled by Opposition parties, continue to press their demand, claiming that their own finances have been rendered inadequate during the pandemic.

But it is not just Opposition leaders who want GST compensation to be paid. Bihar Deputy Chief Minister and Finance Minister Sushil Kumar Modi said on Tuesday that the Centre should borrow and pay GST compensation to states. “The Centre is morally bound to do so”, he said at the Idea Exchange event of The Indian Express. “State finances are under stress. We are able to pay only salaries, wages and pensions. We are heavily dependent on the Centre as 76% of our revenue comes from the Centre.” The BJP is one of the ruling parties in Bihar.

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Modi said he would raise the matter with the central government during Thursday’s GST Council meeting. The council will decide how much of the revenue loss incurred by the states will be borne by the Centre. The meeting will be held via videoconferencing, and members of the council will assess the gap between the total GST collection and the compensation cess yet to be paid to states.

The council will also decide whether to borrow funds from the market to meet the shortfall in revenue.

Sonia Gandhi calls it ‘betrayal of the states and people’

On Wednesday, Congress President Sonia Gandhi held a meeting with chief ministers of Opposition-ruled states. At the virtual meeting, she said that the Centre’s refusal to pay Goods and Services Tax compensation is “nothing short of betrayal of the states and people”.

Punjab Chief Minister Amarinder Singh said at the meeting that the state has already spent Rs 500 crore on Covid-19 related matters. He said Punjab may face a revenue deficit of Rs 25,000 crore this year. He agreed with West Bengal Chief Minister Mamata Banerjee’s suggestion that all chief ministers should jointly approach Prime Minister Narendra Modi. On Tuesday, Banerjee had said that West Bengal was yet to receive Rs 4,500 crore GST dues from the central government.