Just 4 months from April worsened GST compensation cess prospects

New Delhi, Aug 27 (IANS) As the Centre laid down options of borrowing by states from the Reserve Bank of India (RBI) in lieu of the GST compensation cess, a look at data shows that four month period between April and July this year worsened the compensation scenario to an extent that extraordinary measures became a necessity.

The total compensation cess to states for the four months, for which payment is due from the Centre now, stands at a staggering Rs 1.50 lakh crore. This is nearly the amount of compensation cess released to states and Union Territories in FY 2019-20 of Rs 1.65 lakh crore. Further, in FY19, the total GST compensation cess released was way lower at Rs 41,146 crore.

Addressing the media, Revenue Secretary Ajay Bhushan Pandey said that the GST collection during the period of April-June in FY21 was significantly low amid the pandemic. This pushed up the amount of compensation needed to be paid to states as per the provisions of GST law.

The compensation is the gap between actual revenue collected through GST and projected revenue. The projected revenue is revenue growth of 14 per cent for states per year over base year 2015-16. As per the GST Act, full compensation to the states has to be paid for a period of five years till FY22 only through the compensation fund.

So while projected revenue for FY21 has gone up under the formula, actually revenue has fallen sharply due to the pandemic. This has pushed up the compensation amount that Centre had to pay to states in bi-monthly instalments every year till June 2022.

The total GST collection in April was Rs 32,294 crore which was a mere 28 per cent of the revenue collected during the same month last year and the GST collection for May was Rs 62,009 crore, which was 62 per cent of the revenue collected during the same month last year.

Though the GST collections improved to Rs 90,917 crore in June and then were a tad lower at Rs 87,422 crore in July, the consistent lower collections has pushed up compensation requirements of the states in the first fourth months of the current fiscal.

Pandey said that as the situation improves going ahead during the unlock phases, GST collections could stabilise. It is estimated, he said, that total compensation for FY21 may come around Rs 3 lakh crore of which Rs 65,000 crore could be settled through compensation cess receivable during the year. This would leave a gap of around Rs 2.35 lakh crore that the Centre now wants to compensate through the special borrowing window.

–IANS

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