Centre releases over Rs 35,000 crore as pending GST compensation to states

Ahead of the GST Council meeting on Wednesday, the Centre on Monday sought to soothe the frayed nerves of states by releasing over Rs 35,000 crore as pending compensation. “The central government has released GST compensation of Rs 35,298 crore to states and union territories today (Monday),” the Central Board of Indirect Taxes and Customs (CBIC) said in a tweet.

This is likely to give a positive signal to states for the upcoming meeting, which may take up various options to raise funds to compensate states. Earlier in the day, Union Finance Minister Nirmala Sitharaman assured states that the Centre would not “renege” on the promise of GST compensation.

There was, however, some confusion over the period for which the compensation amount was released. States said with this payment they got compensation dues till September.

“Compensation has been released to the states for the months of August and September. We are hopeful that compensation for October and November will be released by the end of the month,” Bihar Deputy Chief Minister Sushil Modi told Business Standard.

Earlier, Parliament’s Standing Committee on Finance had said the Centre had paid Rs 45,745 crore as compensation to states for the first four months of the current financial year. The dues were paid in June and August. However, according to Sitharaman’s statement in the Rajya Sabha, the Centre had released compensation of Rs 65,250 crore till October this year.

This, she said, was Rs 9,783 crore more than what the Centre collected through the compensation cess — Rs 55,467 crore as of October 31 this year. Even BJP-ruled states raised eyebrows over Sitharaman’s response to the compensation cess issue.

“How is it possible? What about the surplus cess of the previous two years? Is the FM (Sitharaman) trying to say the Centre has given extra money to states from the Consolidated Fund of India?” asked the finance minister of a BJP-ruled state.

Under the separate Compensation Act, if states’ GST revenue does not grow by at least 14 per cent over the base year of 2015-16, the Centre pays it the difference, after every two months. Earlier, states were livid since the compensation cess payment issue was not part of the official agenda circulated for the meeting.

On Monday itself, before news of the release of compensation to states came, West Bengal Finance Minister Amit Mitra wrote to Sitharaman, raising the issue of non-payment of these dues.

“I would like to raise the issue of non-payment of GST compensation to the states, which has wreaked havoc on state finances,” he said.

He reminded her about his earlier letter of November in which he had impressed upon her the context in which the constitutional guarantee was given to the states.
“We urge you to honour that so that the current mistrust between the Centre and the states is put to rest for all time to come,” Mitra told Sitharaman.

Earlier this month, finance ministers and representatives of opposition-ruled states had met Sitharaman and expressed their concern over delay in paying compensation. Most of the states rued that the delay in payment put pressure on their finances, affecting development work.

In the GST Council meeting, the revenue augmentation committee will give a presentation suggesting measures to broaden the tax base, additional resource mobilisation, and improved tax compliance. It will likely recommend correcting the inverted tax structure in key items, revising slabs, raising cess on a few items, among others.

After plummeting to a 19-month low in September at Rs 91,916 crore, GST collection recovered to Rs 1.03 trillion in November, posting 6 per cent year-on-year growth on the back of festive demand. Despite that, collection is lower than the rate needed to meet the steep target for FY20.