The Centre on Monday, December 16, said it has released ₹35,298 crore as compensation to states and Union territories for the revenue loss they suffered due to the implementation of the goods and services tax (GST).
The payments come ahead of the states complaining about delayed compensation after they did not receive 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.
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 crores. 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.”
States were assured compensation for five years from the implementation of GST on 1 July 2017 for the revenue loss due to removal of state taxes such as value-added tax. The compensation is met through the levy of a cess on items such as automobiles and goods such as tobacco and aerated drinks.
Between April and July, states received ₹45,745 crores, of which ₹17,789 crore was in April-May and ₹27,956 crore was in June-July, according to a report of the parliamentary standing committee on finance.
“A budget provision of ₹101,200 crores 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 slowdown in the economy driven by sluggish consumption has raised concerns about a shortfall in revenue collection. The GST Council meeting on Wednesday will explore measures to increase revenue receipts, including raising cess on some goods and find ways to curb tax evasion.
Last week, finance minister Nirmala 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.
FM 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,” she said at the India Economic Conclave in Mumbai on Monday, admitting the delay in payments.
After dropping to a 19-month low in September at Rs 91,916 crore, GST collection recovered to Rs 1.03 trillion in November, recording a 6 per cent year-on-year growth on the back of festive demand. Despite that, the collection is lower than the rate required to meet the steep target for FY20.
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