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States were promised compensation for a period of five years from the implementation of GST on 1 July, 2017, for the revenue loss due to abolition of state taxes such as value-added tax and octroi
States were promised compensation for a period of five years from the implementation of GST on 1 July, 2017, for the revenue loss due to abolition of state taxes such as value-added tax and octroi

States get GST dues ahead of key meet

  • States have been complaining about delayed compensation after they stopped receiving bimonthly payouts from the Centre starting August
  • The GST Council meeting on Wednesday will explore measures to raise revenue receipts, including raising cess on some goods, and explore ways to curb tax evasion

New Delhi: The Centre on Monday said it has released 35,298 crore as compensation to states and Union territories for the revenue loss they have suffered due to the implementation of the goods and services tax (GST), a payment some states complained had been stalled for months.

The payments come ahead of a GST Council meeting on Wednesday.

States have been complaining about delayed compensation after they stopped receiving bimonthly payouts from the Centre starting August. Finance ministers of Delhi, Punjab, Puducherry and Madhya Pradesh and officials from Kerala, Rajasthan, Chhattisgarh and West Bengal met Union finance minister Nirmala Sitharaman earlier this month to discuss the delay in GST compensation.

States were promised compensation for a period of five years from the implementation of GST on 1 July 2017 for the revenue loss due to abolition of state taxes such as value-added tax and octroi. The compensation is met through the levy of a cess on items such as automobiles and demerit goods such as tobacco and aerated drinks.

Between April and July, states received 45,745 crore— 17,789 crore in April-May and 27,956 crore in June-July—according to a report of the parliamentary standing committee on finance. “A budget provision of 101,200 crore has been kept for the year 2019-20 to meet the expenditure on payment of compensation to states/UTs with legislatures," the report said.

The development comes against the backdrop of a slowdown in the economy driven by sluggish consumption. This has stoked concerns about a shortfall in revenue collection. The GST Council meeting on Wednesday will explore measures to raise revenue receipts, including raising cess on some goods, and explore ways to curb tax evasion.

Last week, Sitharaman told lawmakers that the compensation cess collected between April and October was 55,467 crore and the compensation released to states was 65,250 crore.

Sitharaman has maintained that the Centre is committed to paying compensation due to states. “It is certainly their right, I am not denying (that). At the same time, I am also making it clear that I am not reneging on that. States will be given (the compensation). We are certainly not reneging on it," Sitharaman said via videoconference at the India Economic Conclave in Mumbai on Monday, acknowledging the delay in payments.

Punjab finance minister Manpreet Singh Badal said in an interview last month: “The GST compensation due is 2,100 crore. We have some arrears pending of another 2,000 crore. For a small state like Punjab, the outstanding amount is 4,100 crore. This is grossly unfair. I wake up three times a night thinking of this figure. We have to go for fresh borrowings, which come at a cost. The state’s development programme suffers."

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