Centre clears entire GST compensation of Rs86,912 crore due to states

The balance is being released by the Centre from its own resources pending collection of cess.

This decision was taken to assist the states in managing their resources and ensuring that their programmes, especially capital expenditure is carried out successfully during the financial year, says a finance ministry release.

Goods and Services Tax (GST) was introduced in the country on 1 July 2017 and states were assured of compensation for loss of any revenue arising on account of implementation of GST as per 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 of cess collected is being credited to the Compensation Fund. Compensation to states is being paid out of the Compensation Fund.

Bi-monthly GST compensation to states for the period 2017-18, 2018-19 was released on time out of the Compensation Fund. While the states’ protected revenue has been growing at 14 per cent compounded rate, the Cess collection did not increase in the same proportion. Covid-19 further increased the gap between protected revenue and the actual revenue receipt, including reduction in cess collection.

In order to meet the resource gap of the states due to short release of compensation, the centre has borrowed and released Rs1.1 lakh crore in 2020-21 and Rs1.59 lakh crore in 2021-22 as back-to-back loan to meet a part of the shortfall in cess collection. All the states have agreed to the above decision. In addition, the centre has also been releasing regular GST compensation from the Fund to meet the shortfall.

With the concerted efforts by the centre and the states, gross monthly GST collection, including cess, has been showing a remarkable progress.