Centre Releases Rs 35,298-Crore GST Compensation To States And Union Territories
The Centre had not paid states compensation for loss of revenue from implementation of GST since August
The Narendra Modi-led government made another compensation payment to states for losses incurred on account of implementation of the goods and services tax amid worries of acute pressure on their finances.
The central government released Rs 35,298 crore today as GST compensation to states and union territories, the Central Board of Indirect Taxes and Customs said in a Twitter post. It did not specify which months this payment corresponds to.
The centre had not paid GST compensation to states since August, prompting finance ministers from at least four states to appeal to Union Finance Minister Nirmala Sithraman to release pending dues. They, in a joint statement, had said some states were resorting to ways and means (advances) or even overdrafts as they were facing pressure on finances.
Compensation Paid So Far
A Parliamentary Standing Committee on Finance report presented on Dec. 10 said the finance ministry had released Rs 45,745 crore in compensation payment for the period April-July. The total GST compensation to states was Rs 17,789 crore in April-May 2019, and Rs 27,956 crore in June-July 2019, showing a year-on-year increase of 356 percent and 87 percent, respectively. The report did not cover data for the August-September and October-November periods.
On Dec. 12, Sitharaman informed Parliament that compensation cess collected in April-October 2019 period was Rs 55,467 crore and the compensation released to states was Rs 65,250 crore. That’s Rs 9,783 crore higher than the cess collected, implying the government would have to make up for this additional amount through other sources, she had said.
The figure provided by the finance minister indicates an additional payment of Rs 19,505 crore as compensation over what the parliamentary committee report documented. But the period corresponding to this was not detailed by the minister.
The CBIC tweet refers to a Rs 35,298 crore payment, but whether it includes the Rs 19,505 and for which period is also unclear.
Assuming this payment is over and above what the minister said had been paid as in the April-October period, the total compensation paid so far would be Rs 1,00,548 crore. This is almost equal to the government's budgeted target of 1,09,343 crore in compensation cess collections for the full current financial year.
And while that underscores the tax revenue collection challenge facing the centre, the payments may put to rest states’ concerns regarding delay.
The focus of the GST Council for the next meeting (Dec. 18) will now move to revenue augmentation measures so that any future shortfall in cess collection can be avoided, said MS Mani, a partner at Deloitte India.
GST was rolled out in July 2017 after subsuming 17 different indirect taxes, including locally collected value-added taxes and cesses by states. The Centre is supposed to compensate states bi-monthly for any shortfall they incur in the first five years of the implementation of GST considering a 14 percent growth in subsumed indirect taxes, and keeping 2015-16 as the base year.