Finance ministers of four states and officials from four others on Wednesday urged the Union government to clear dues towards compensation from the implementation of the Goods and Services Tax (GST) as they are facing financial difficulty.
The appeal comes at a time when the Centre’s revenue collection numbers have raised serious concerns, forcing the federal indirect tax body, the GST Council, to call a meeting later this month to explore ways to boost collections, including raising tax rates. Finance ministers of Delhi, Punjab, Puducherry and Madhya Pradesh and officials from Kerala, Rajasthan, Chhattisgarh and West Bengal met Union finance minister Nirmala Sitharaman to discuss their grievances over the delay in GST compensation payment. Minister said she accepted the memorandum, but did not say when the dues will be cleared.
Punjab finance minister Manpreet Singh Badal told reporters after the meeting that the GST compensation for August and September had not been released. “We discussed that issue with the union finance minister. Even the compensation for the next period (October-November) will be due now. The central government is under obligation to pay.”
Badal said Sitharaman had held out an assurance that it will be released as early as possible though no timeline has been given. Deputy chief minister of Delhi Manish Sisodia said in a statement later in the day that states were guaranteed compensation for five years to offset their tax revenue shortfall in the GST era. He also highlighted in a letter presented at the meeting how GST revenues were under stress due to a general slowdown in the economy. Sisodia said the Centre owed the state ₹3,642 crore in compensation dues.
In November, GST revenue receipts reversed the trend of a contraction, witnessed in the previous two months, and crossed the ₹1-trillion mark, official data showed. The recovery in indirect tax receipts for November is good news for policymakers who have been taking steps to improve liquidity in the system and boost consumption to counter a deep economic slowdown. Central and state governments collected ₹1.03 trillion in November, up 6% year-on-year. In fact, even the cess levied on items on the highest slab of 28% is not sufficient to compensate the states given the shortfall in revenue due to sluggish GST collections.
Now, the Centre has to either step up collections from cess or find a new source of revenue to make up for the states’ revenue shortfall. Proceeds from the cess are not part of the pool of Centre’s tax revenue, which is shared with states, as per the formula suggested by the Finance Commissions. GST revenue receipts remaining below target has also caused friction in Centre-state relations, which has now spilled over to a debate on how the 15th Finance Commission (FFC) should propose sharing of the Centre’s tax revenue with states for the period FY22-FY26. States have rejected suggestions from the FFC for a review of the compensation package. Last month, FFC chairman NK Singh sought a leverage with the GST Council, arguing that tax rate cuts and grant of exemptions decided solely by the council affects the FFC’s goal of optimizing revenue targets of the Centre and states, Mint reported on 22 November.