Centre clears states’ GST compensation dues till May

NEW DELHI: The Centre has released the entire amount of GST compensation payable to states up to May 31, 2022, approving Rs 86,912 crore with a significant chunk coming from the Union government’s own resources pending collection of cess. This decision was taken 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.

Some states have been demanding that the compensation be extended beyond June 2022. This decision has been taken despite the fact that only about Rs 25,000 crore is available in the GST Compensation Fund and the balance is being released by the Centre from its own resources.

The goods and services tax (GST) was introduced in the country from July 1, 2017 and states were assured of compensation for loss of any revenue arising on account of implementation of the tax reform measure according to the provisions of the GST (Compensation to States) Act, 2017 for a period of five years.

For providing compensation to states, a cess is being levied on certain goods and the amount collected is being credited to the Compensation Fund. Compensation to states is being paid out of the Compensation Fund from July 1, 2017. Bi-monthly GST compensation to states for the period 2017-18 and 2018-19 was released on time out of the Compensation Fund.

As the states’ protected revenue has been growing at 14% compounded growth whereas the cess collection did not increase in the same proportion, Covid further increased the gap between protected revenue and the actual revenue receipt including reduction in cess collection, according to a finance ministry statement.