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Union govt paid Rs 1.65 lakh crore GST compensation to states in FY20: Finance minister Nirmala Sitharaman
The finance ministry said the Union government utilised the balance cess amount of previous fiscal years to compensate states for their revenue losses in 2019-20, besides transferring some money from the Consolidated Fund of India.
The Union government released Rs 1,65,302 crore as Goods and Services Tax (GST) compensation to states in the previous financial year ended March 31, even as compensation cess collection fell by over 42% that year, a finance ministry statement said on Monday.
“The Central government has recently released GST compensation of Rs 13,806 crore to states for March. Taking this amount into account, entire compensation up to 2019-20 has been released to states,” it said.
The amount of cess collected in the financial year 2019-20 was Rs 95,444 crore, it added. The GST regime was launched on July 1, 2017, that introduced a uniform indirect tax structure across the country by merging various state and local-level levies.
At the time of introducing the new indirect tax regime, the GST law assured state governments a 14% increase in their annual revenue for five years and the Centre committed to meet any shortfall in revenue through the cess levied on luxury goods and sin products such as liquor, cigarettes, aerated water, automobiles, coal and other tobacco commodities.
The finance ministry said the Union government utilised the balance cess amount of previous fiscal years to compensate states for their revenue losses in 2019-20, besides transferring some money from the Consolidated Fund of India.
“To release the compensation for 2019-20, the balance cess amount collected during 2017-18 and 2018-19 was also utilised. In addition, the Centre had transferred Rs. 33,412 crore from Consolidated Fund of India to the Compensation Fund as a part of an exercise to apportion the balance of IGST [integrated GST] pertaining to 2017-18. Inter-state supply of goods or services attracts IGST,” it said.
Inadequate collection of compensation cess has been a major issue. The cess collection is expected to drop even further in the current financial year (2020-21) because the coronavirus disease (Covid-19) pandemic saw a 68-day nationwide lockdown from March 25 to May 31.
The matter was discussed in the last GST Council meeting on June 12, but it was deferred by a month.
After the council’s meeting, Union finance minister Nirmala Sitharaman had said that on the request of members of the council, it would meet in July to discuss only “one-agenda item” that was paying compensation to states for their shortfall in GST revenue.
“Compensation, which has to be given to states, and, if at all, it results in some kind of borrowing, how and who is going to pay for it,” she had said.
Sitharaman is the chairperson of the apex federal body on indirect tax and finance ministers of states are its members.
Usually, the council’s decisions are unanimous.
Archit Gupta, founder and chief executive officer (CEO) of the financial technology platform ClearTax, said, “The compensation cess was designed to cover any losses that the states may incur due to the implementation of GST. Cess payments to states have been overdue for some time and are being gradually released to states. The state governments are struggling with a dip in revenue collections.
“This release will come in handy for states and reduce their borrowing especially during this time of crisis due to the pandemic. More revenue collections for the past quarter are taking place in July, as the filing of GST returns has picked up. However, there may still be a shortfall and the Centre will have to look at its own fiscal situation closely in the coming months,” he added.
