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Home >Economy >GST compensation cess: Govt may borrow 1.58 lakh cr to pass on to states, says FM Sitharaman

Finance Minister Nirmala Sitharaman on Friday stated that the Centre would apply the same formula on GST compensation cess as last year. The FM estimated that the Centre will have to borrow 1.58 lakh crore to pass it on to states.

"On GST compensation cess, same formula as last year to be adopted this year too. The rough estimate is that the Centre will have to borrow 1.58 Lakh Crores and pass it on to states," FM Sitharaman said after the 43rd GST Council meeting.

Sitharaman said that a special session will be conducted to discuss modalities of the GST compensation cess such as collection, distribution, and time limit.

The compensation cess was introduced as relief for states for the loss of revenues arising from the GST implementation.

Under GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017.

Compensation cess is levied on those products which are considered to be ‘sin’ or luxury goods. The collected compensation cess flows into the Consolidated Fund of India and then transferred to the Public Account of India, where a GST compensation cess account has been created.

Last year, on October 5, the GST Council had decided to extend the levy of compensation cess beyond the transition period of five years for such period as may be required to meet the revenue gap.

The Centre, on the request of states, also decided to increase the shortfall amount to 1.10 lakh crores from 97,000 crores under the borrowing option.

Sitharaman had said 21 states have chosen borrowing option 1 for compensation of revenue shortfall due to GST implementation.

She had clarified that the Centre is not denying compensation to any state but those which have not chosen any borrowing option have to borrow from the market.

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