GST compensation: Finance Minister Nirmala Sitharaman mum on issue

New Delhi: The BJP government at the Centre obviously doesn’t believe in the ‘give and take’ policy when it comes to sharing revenues generated through the new GST regime. This was evident from union Finance Minister Nirmala Sitharaman’s response on Monday when she remained mum on the issue of extending GST compensation to States even […]

New Delhi: The BJP government at the Centre obviously doesn’t believe in the ‘give and take’ policy when it comes to sharing revenues generated through the new GST regime. This was evident from union Finance Minister Nirmala Sitharaman’s response on Monday when she remained mum on the issue of extending GST compensation to States even as she asserted that the Centre would continue to collect GST compensation cess.

The Minister sought to justify the Centre’s policy stating that it will instead utilise the compensation cess collected to repay the back-to-back loans released to States in 2020-21 and 2021-22 in lieu of the GST compensation shortfall.

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Responding to a question raised by TRS MPs G Ranjith Reddy and B Venkatesh Netha, Sitharaman informed Lok Sabha that some States, including Telangana, had sought a five-year extension for the compensation paid to them for revenue shortfall due to GST implementation. She said the time-frame for the compensation to the State for any loss of revenue arising out of the new GST regime for five years ended on June 30.

In its 47th meeting, the GST Council recommended extending the period of levy of GST compensation cess beyond June 2022 to cover the entire shortfall, as well as servicing the back-to-back loan released to States to meet their resource gap due to the short release of compensation, she said in a written reply. Accordingly, a notification was issued last month to continue with the levy and collection of GST compensation cess till March 2026.

As per Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016, Parliament shall, by law, on the recommendation of the GST Council, provide compensation to States for the loss of revenue arising on account of the implementation of the GST for a period of five years.

When a nationwide GST subsumed 17 Central and State levies from July 1, 2017, it was decided that States will be compensated for any loss of revenue arising out of the implementation of the GST for five years. That timeframe ended on June 30 this year.
Nirmala Sitharaman explained that the Centre borrowed Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loans to meet part of the shortfall in cess collection. In addition, it released Rs 86,912 crore to States and UTs on May 31, 2022, and cleared the entire provisionally admissible GST compensation due till May 2022.

This decision was taken despite the fact that only about Rs 25,000 crore was available in the GST Compensation Fund, she said, adding that the balance of Rs 62,000 crore was released by the Centre from its own resources pending collection of cess.

The union Minister stated that as a result of the continued reforms in GST undertaken by the Centre and States, on the recommendations of the GST Council, buoyancy in GST revenue had been achieved in recent months. The average monthly gross GST collection for the first quarter of FY23 was Rs 1.51 lakh crore against the average monthly collection of Rs 1.1 lakh crore in the first quarter of the last fiscal — an increase of 37 per cent.