Karnataka Government Suggests Higher GST On Luxury Goods Amid Revenue Shortfall

The Karnataka government has urged the Centre to increase Goods and Services Tax (GST) on luxury items keeping in view the current economic challenges the state is facing. The state government also demanded its shares of GST compensation be released immediately.

In a GST council meeting held on Thursday, Home Minister Basavaraj Bommai said the state had achieved 71.61 per cent GST collection despite COVID and urged the Council to pay the compensation of ₹13,764 crore for the past four months.

"Despite the pandemic, we have been a high-performance state when it comes to tax collection. I have insisted that the Council should not punish us if it can't reward us," Bommai told The New Indian Express.

Bommai said the lockdown impacted not only the revenue collection but continues to pose restrictions on a number of tax-generating activities. Looking at the current scenario, the state would not be able to achieve the revenue target of ₹1.8 lakh crore set for this fiscal 2020-21, he added.

Since compensation tax goes directly to the Centre, it will be difficult for states to raise loans. He suggested the Centre take loans and pay compensation to the states, keeping in view the two options states are left with - Council through RBI facilitating for states to borrow ₹97,000 crore, which is the estimated shortfall in compensation due to GST implementation, at a certain interest rate or to allow states is to borrow the entire mentioned ₹2.35 lakh crore shortfall. Both options suggest that states do the borrowing.

The interest will be repaid from the tax collected after 2022, beyond the first five years of GST implementation, the media reported. The Centre holds the power to extend the period for repayment of this loan beyond 2022 with special interest rates. It is, therefore, suitable for the Centre to take loans and give it to the state.

For the same, the state government will fully cooperate with the central government, Bommai added.

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