The Centre on Tuesday released the entire amount of Goods and Services Tax (GST) compensation payable to States up to May 31, 2022 by releasing an amount of ₹86,912 crore, dipping into its own coffers beyond the ₹25,000 crore balance in the GST Compensation Fund.
The Finance Ministry said this is being done to assist the States in managing their resources and ensuring that their programmes, especially the expenditure on capital, is carried out successfully during the financial year.
Now, the States are only owed compensation under the GST regime for one month — June 2022, the Ministry noted. States had been guaranteed a certain level of revenue for the first five years of the GST regime that was launched in 2017.
“This decision has been taken despite the fact that only about ₹25,000 crore is available in the GST Compensation Fund. The balance is being released by the Centre from its own resources pending collection of Cess,” the Ministry said in a statement.
In April, the Ministry had pegged outstanding GST compensation dues to States for 2021-22 at ₹78,704 crore, equivalent to four months of such accruals. So dues had been remitted to States for the eight-month period of April 2021 till November 2021, but had been pending since December 2021.
Citing an inadequate balance in the GST Compensation Cess account, the Ministry had said the pending amount will be released “as and when amount from cess accrues in the compensation fund”. The Compensation Cess is levied over and above the peak 28% GST rate on luxury or ‘sin’ goods, including cars.
“...The States’ protected revenue has been growing at 14% compounded growth whereas the Cess collection did not increase in the same proportion, [and] COVID-19 further increased the gap between protected revenue and the actual revenue receipt including reduction in cess collection,” the Ministry said.
To meet the resource gap of the States due to shortfalls in compensation cess accruals, the Centre had borrowed and released ₹1.1 lakh crore in 2020-21 and ₹1.59 lakh crore in 2021-22 as back-to-back loans for States to meet part of the shortfalls.
The Telangana government is, however, contesting the Centre’s calculation of dues to the State. “There is something wrong with GOI calculations,” Chief Secretary Somesh Kumar said. Details are being worked out.” He was responding to a query on the exact amount that the State was entitled to get from the Centre towards GST.
Telangana, which has received ₹296 crore, has decided to write to the Centre, Mr. Kumar added.
(With inputs from M. Rajeev, Hyderabad)
