Centre to release another Rs 35,000 cr compensation to states soon

The Centre will soon release another Rs 35,000 crore to states to compensate for the revenue loss on account of GST rollout, an official said. Under the Goods and Services Tax (GST) law, states are guaranteed compensation for revenue loss for 5 years if their revenue does not increase 14 per cent 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.

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 (CFI) to compensation cess fund in 2 instalments. 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 CFI 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 instalments.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same is 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 were 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 payment to states.

"Revenue will have to increase and for that only we are looking at rate rationalisation, addressing issue of inverted duty structure and increasing compliance. This will ensure that requirement of compensation is less," Pandey said.

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He further said the government is looking at monthly average GST collection of over Rs 1 lakh crore.