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With overall consumption of various goods and services at a low, States are staring at huge loss in Goods and Services Tax (GST) collections. Accordingly, they have urged the Centre to release the balance of GST compensation earliest.
States such as Tamil Nadu, Punjab and West Bengal have asked the Centre to immediately release compensation due for last fiscal.
This compensation is released at the end of every two months’ period. Accordingly, for the February-March period, payment is made in the next fiscal. However, some of the States say dues are pending for December-January period too.
The last tranche of GST compensation was paid in February, when the Centre released over ₹1.20-lakh crore to the States/UTs during 2019-20. This is higher than revised estimate of cess collection of little over ₹98,000 crore or even Budget estimate of over ₹1.09-lakh crore.
After the Goods and Services Tax (GST) regime was put in place, the Centre assured the States, through legislation, that the revenue shortfall will be compensated fully for first five years.
The 2015-16 was assumed to be the base year for calculating the compensation amount for a financial year. The growth rate of revenue for a State during the five-year period is assumed at 14 per cent per annum.
In his speech during PM’s meeting through video conferencing on Thursday, Tamil Nadu Chief Minister Edappadi K. Palaniswami urged for an immediate release of the GST compensation amount due for the December-January 2019-20.
Similarly, Punjab Chief Minister wrote to the PM seeking immediate release of ₹6,752.83 crore towards the state’s arrears of GST compensation pending since October 2, 2019. He urged the PM to direct the Finance Ministry to ensure the release of these arrears on priority in view of the Covid-19 crisis.
In his letter to the Finance Minister Nirmala Sitharaman, West Bengal’s Finance Minister Amit Mitra complained that his State is yet to receive GST compensation to the extent of ₹1,775 crore, which includes the outstanding compensation for October-November, 2019.
Moreover, GST compensation for February-March 2020 of approximately ₹1,100 crore is also due. “I urge you to immediately release the entire outstanding GST compensation due to the State,” he wrote.
However, the Centre’s already difficult fiscal situation has come under further stress due to the additional expenditure needed to combat the Covid-19 crisis.
Though, earlier this month, Sitharaman had indicated about borrowing to pay the compensation. She also said that she would seek legal opinion and discuss it in the GST Council, that is likely to be called 2-3 weeks after the ongoing Budget session of Parliament.
However, with the spread of Covid-19 virus, there is not much development, as of now, on this proposal.
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