GST: Centre To Release Another Rs 35,000 Crore Compensation To States Soon
The portrait of Mahatma Gandhi is displayed on an Indian 50 rupee banknote in an arranged photograph in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)  

GST: Centre To Release Another Rs 35,000 Crore Compensation To States Soon

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The Centre will soon release another Rs 35,000 crore to states to compensate for the revenue loss on account of Goods and Services Tax rollout, an official said.

Under the GST law, states are guaranteed compensation for revenue loss for 5 years if their revenue does not increase 14 percent on the base year of 2015-16. There were no differences between the Centre and states with regard to compensation payment in 2017-18, 2018-19, and in the first four months of the current fiscal.

Also read: GST Law Permits Arrest Without FIR Or Anticipatory Bail, Says Supreme Court

However, with revenue mop-up from compensation cess falling inadequate, the Centre held back fund transfer to states for revenue shortage beginning August. Following this, states raised the issue with the Centre and in December 2019, Rs 35,298 crore was released as compensation for August-September.

"We will soon transfer another Rs 35,000 crore from the consolidated fund of India to compensation cess fund in 2 installments. The first tranche will be compensation for October-November," an official told PTI. The excess collection from compensation cess in 2017-18 and 2018-19 was deposited in the corporate finance institute earlier and this will now be transferred back to the compensation fund, the official added.

Finance Minister Nirmala Sitharaman in her Budget speech said it is decided to transfer to the GST Compensation Fund balances in two installments. Under the GST structure, taxes are levied under 5, 12, 18 and 28 percent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

The Centre has so far released about Rs 2.11 lakh crore as GST compensation to states since the implementation of GST on July 1, 2017. During July 2017-March 2018 Rs 48,785 crore was released, while between April 2018-March 2019, Rs 81,141 crore was paid to states. For April-May and June -July last year, Rs 17,789 crore and Rs 27,956 crore was released. Further, Rs 35,298 crore was paid to states as compensation for August-September 2019.

In an interview to PTI, Revenue Secretary Ajay Bhushan Pandey had said revenues from GST will have to increase in order to resolve the issue of compensation paid to states. "Revenue will have to increase and for that only we are looking at rate rationalization, addressing the issue of inverted duty structure and increasing compliance. This will ensure that the requirement of compensation is less," Pandey said. He further said the government is looking at monthly average GST collection of over Rs 1 lakh crore.

Also read: 12% Tax Revenue Growth Achievable In 2020-21, Says Secretary Ajay Bhushan Pandey

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