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To ensure a smooth introduction to the Goods & Services Tax (GST), the Centre will seek Parliament’s approval for additional expenditure on compensation to States and will table a Supplementary Demands for Grants next week to enable payment of the first instalment of ₹11,000 crore this fiscal year.
Two kinds of compensations — past and future — are due to the States after the rollout of GST from April 1, 2016.
The past compensation is because of lowering of Central sales tax (levied on inter-State trade). The total amount due on this is around ₹34,000 crore, which was a bone of contention in bringing all the States on board.
The Centre has now agreed to pay the entire amount in three instalments. Accordingly, it will make a provision of ₹11,000 crore to be paid in the current fiscal year (ending on March 31, 2015) itself.
Govt mop-upDespite the difficult fiscal situation, the Centre has managed to mop up money through savings on subsidies and Plan expenditure, besides transfer of the entire Reserve Bank surplus of ₹52,679 crore for 2013-14.
For the remaining dues, the Finance Ministry has made a provision of ₹15,000 crore for 2015-16 (April 1, 2015-March 31, 2016).
After these two instalments, the Centre will have the option of either paying the balance ₹8,000 crore in 2016-17, or to seek a Parliamentary nod for additional expenditure in the next fiscal year itself. But, this will depend upon buoyancy in revenues next year.
Second compensationThe second compensation is earmarked for the future.
It has been decided that the Centre will compensate States for loss of revenue arising on account of GST implementation for a period up to five years.
A provision in this regard has been made in the Constitution Amendment Bill, as demanded by States.
The compensation will be on a tapering basis.
That is, 100 per cent for the first three years, 75 per cent in the fourth year and 50 per cent in the fifth year.
The Centre aims to get the Bill passed in the ongoing session of Parliament.
The proposed amendments in the Constitution will confer powers both on Parliament and State legislatures to make laws for the levy of GST on the supply of goods and services in the same transaction.
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