The attorney general has said the Goods and Service Tax (GST) Council can decide whether a market borrowing mechanism can be established to compensate states for revenue losses due to implementation of the indirect tax. The council had sought the opinion of the government's top law officer on the suggestion by states that if revenues fall short, funds should be raised by the council from the market to compensate them. The center has expressed its inability to do so for FY21 beacuse of the Covid-19 outbreak that has impacted tax revenues.Other options the council can consider include increasing GST rates, bringing more items under the compensation cess or increasing the cess rate. The council can also look at asking the states to themselves borrow funds from the market to the extent of the compensation shortfall and these can be repaid by future collections in the compensation fund.Under the GST framework, any decision on compensation and how it needs to be provided rests with the council. The GST (Compensation to States) Act, 2017 allows for paying compensation to states over a five year transition period for any potential loss in revenues due to implementation of the tax, which was rolled out on July 01, 2017. The amount is to be paid from GST compensation fund via a cess imposed on certain items. However, the law is silent on how the shortfall will be met in case there is gap in the cess fund. The government has met the entire liability for the last three years.