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Full Rs 1.65 lakh cr GST compensation for FY20 given to states

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In a bid to provide further relief to states amid the coronavirus outbreak, the Finance Ministry has released Rs 13,806 crore as compensation for March 2020 for the states’ revenue loss in the goods and services tax (GST) regime.

This comes at a time when state finances are under severe stress due to the Covid-19 lockdown that has also seen the states’ GST revenues falling sharply to less than half the usual levels in the months of April and May.

“Central Government has recently released GST compensation of Rs 13,806 crore to states for March 2020. Taking this amount into account, entire compensation upto 2019-20 has been released to states,” the Ministry said in a statement.

“The total amount of compensation released for the year 2019-20 is Rs 1,65,302 crore whereas the amount of cess collected during the year 2019-20 was Rs 95,444 crore,” the statement added.

To release the compensation for 2019-20, the balance of cess amount collected during 2017-18 and 2018-19 has also been utilised by the Finance Ministry. In these years, the collection of cess was more than actual compensation paid to the states.

In addition, the Centre had transferred Rs 33,412 crore from the Consolidated Fund of India to the Compensation Fund as a part of an exercise to apportion balance of IGST pertaining to 2017-18.

Of the GST compensation released for FY20, the bulk has been given to industrial states of Maharashtra, Gujarat, Tamil Nadu and Karnataka. While Maharashtra has got a compensation of Rs 19,233 crore for FY20, Karnataka has received Rs 18,628 crore, Gujarat Rs 14,801 crore, Tamil Nadu Rs 12,305 crore and Punjab Rs 12,187 crore.

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States such as Arunachal Pradesh, Manipur, Nagaland, and Sikkim did not receive compensation as there is no revenue loss. In fact, the compensation need of all northeastern states is minuscule. Among others, Goa, and Puducherry have received the lowest compensation.

GST compensation is released at the end of every two months period. So, for FY20, dues are actually paid only upto January with compensation for the February-March period getting settled in next fiscal.

After the Goods and Services Tax (GST) regime was put in place, the Centre assured the states, through legislation, that the revenue shortfall will be compensated fully for first five years.

2015-16 was assumed to be the base year for calculating the compensation amount for a financial year. The growth rate of revenue for a state during the five-year period is assumed at 14 per cent per annum. Any shortfall in this growth number is to be compensated by the Centre.

For the Centre, payment of GST compensation dues would further strain its resources that are already impacted with less than encouraging overall tax collections. With economic growth now projected to slump and pressure on it to come out with more economic packages to take the country out from a recession owing to Covid-19, the centre is in a bind how to manage the situation.

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