With the Central government showing inability to compensate states for revenue losses as per the agreed formula under Goods and Services Tax (GST), the question is whether the two sides can find a middle path between GST and the older tax regime where states had more say on the revenue collected.
As the GST Council is scheduled to meet for the 41st time today to especially discuss the issue of the gap between compensation requirements of the states and collection from compensation cess, non-BJP ruled states have made their anger clear over the Centre’s inordinate delay in paying GST compensation.
Even as states and Centre are likely to deliberate on finding ways to fill the compensation gap, some states have called for more say in ways to raise GST collection if the Centre fails to compensate them.
In a meeting of non-BJP chief ministers yesterday, Maharashtra CM Uddhav Thackeray called for ways to find a middle path between GST and the older tax regime. Puducherry Chief Minister V Narayanasamy advocated for states to have the power to decide GST rates if the Centre fails to compensate.
West Bengal Chief Minister Mamata Banerjee said in the meeting that the Centre had not paid Rs 4,100 crore due to the state since March, while Punjab Chief Minister Amarinder Singh said that the state is facing Rs 28,000 crore drop in revenue collection in 2020-21.
Amid all this, the GST Council meeting is likely to discuss ways to fill the compensation gap. While one of the ideas is to allow the GST Council to borrow from the market, the council might also explore the possibility of raising compensation cess on some goods or bringing new goods under the compensation cess.
The central government had last released GST compensation of Rs 13,806 crore to states for March 2020. The total compensation paid to the states in 2019-20 was Rs 1,65,302 crore whereas the amount of cess collected during the period was Rs 95,444 crore, a shortfall of Rs 70,000 crore.
This shortfall was made good by digging into the balance of cess amount collected during 2017-18 and 2018-19. In addition, Centre had transferred Rs 33,412 crore from the Consolidated Fund of India to the Compensation Fund as part of an exercise to apportion the balance of IGST pertaining to 2017-18.
As per the provisions of GST law, the Centre would compensate states for loss of revenue due to the introduction of GST for the first five years (2017-2022). The loss to revenue is calculated assuming a 14 percent growth per annum on the base year figure of 2015-16 of the taxes subsumed in GST.