Centre releases Rs35,298-cr as GST compensation to states

When GST was rolled out on 1 July 2017, the centre had assured states through legislation to compensate for the loss of revenue as several taxes, such as VAT were subsumed in the new levy and also snatched their right to levy taxes.

The compensation amount was fixed at 14 per cent on top of revenue in the base year of 2016-17. The corpus for paying compensation was collected by levying a cess on top of GST rates on tobacco products, cigarettes, aerated water, automobiles, and coal.

This compensation was to be released after every two months but it was pending since August, drawing protests from states, especially non-BJP ruled ones.

"The central government released GST compensation of Rs35,298 crore to states and union territories today," the Central Board of Indirect Taxes and Customs (CBIC) said in a Twitter post.

The decision comes just days before the 38th meeting of the GST Council - the highest decision-making body of the new indirect tax regime – due on 18 December, where the opposition-ruled states had planned to again raise the issue of delayed payments.

Opposition-ruled states such as Punjab, West Bengal and Kerala and now Maharashtra have been demanding immediate release of GST Compensation Fund. Their finance ministers had also met union finance minister Nirmala Sitharaman and the issue came up during the just-concluded Winter Session of Parliament.

Sitharaman had, in press conferences and industry events, acknowledged the dues but never mentioned timelines for making the payment.

She had, on 12 December, made a statement in the Rajya Sabha that in 2017-18, the total cess collected was Rs62,596 crore, of which Rs41,146 crore was released to states. The remaining Rs15,000 crore was accumulated in the Cess Fund. In the next year, Rs95,081 crore was collected and Rs69,275 crore released to states but "cess accumulated in the Fund was zero," she had said, according to transcript of her speech available on the Rajya Sabha website.

It wasn't clear how no money was accumulated in the Cess Fund in 2018-19 when, according to her, only Rs69,275 crore out of Rs95,081 crore was paid.

She also hadn't said what happens to the surplus that accumulates in the Fund.

According to Sitharaman, during the current fiscal year that began in April 2019, cess collections till 31 October stood at Rs55,467 crore but compensation released to the states was Rs65,250 crore. "The Government of India has released Rs9,783 crore more than the amount raised through cess collections (this fiscal)," she had said in the Rajya Sabha.

On Monday, Sitharaman, speaking at a conference, assured states that the centre will not "renege" on the promise of GST compensations. The delays to pass on the money are due to slippage in collections and the states have nothing to be embarrassed about, she said. "It is certainly their right, I am not denying. At the same time, I am also making it clear to say that I am not reneging on that. States will be given. We are certainly not reneging on it. I admit that the payments which had to go as the compensation head have not been given for two months slot."

"I do not want them (states) to feel embarrassed because it's not their fault nor is it personally my fault," she said, admitting that GST collections have been much lower than expectations.

She attributed the dip in collections to a slip in GST filing due to natural calamities and also due to a slowdown in consumption that has a direct impact on the collections.