The Centre released ₹86,912 crores on Tuesday, digging into its own resources beyond the 25,000 crore balance in the GST Compensation Fund, to pay the whole amount of Goods and Services Tax (GST) compensation payable to States up to May 31, 2022.
This, according to the Finance Ministry, is being done to assist states in managing their resources and ensuring that their projects, particularly capital expenditures, are carried out successfully throughout the fiscal year.
States are only owed compensation under the GST regime
According to the Ministry, the States are only owed compensation under the GST regime for one month – June 2022. For the first five years of the GST regime, which began in 2017, states were guaranteed a set level of revenue.
“This decision was made despite the fact that the GST Compensation Fund only has approximately 25,000 crore available.” The balance is being issued from the Centre’s own resources awaiting Cess collection, according to a statement from the Ministry.
The Ministry estimated overdue GST compensation owing to States for 2021-22 at 78,704 crores in April, which is equal to four months’ worth of accruals. As a result, dues had been remitted to States for the eight-month period from April to November 2021, but had remained unpaid since December 2021.
Outstanding cash will be distributed
The Ministry had stated that the outstanding cash will be distributed “as and when amount from cess accrues in the compensation fund,” citing an insufficient balance in the GST Compensation Cess account. The Compensation Cess is imposed on luxury or “sin” products, such as automobiles, in addition to the current GST rate of 28 percent.
“…The States’ protected revenue has been growing at a 14 percent compounded rate, whilst Cess collection has not kept pace, [and] COVID-19 has widened the gap between projected revenue and actual revenue receipt, including a fall in cess collection,” the Ministry added.
The Centre borrowed and released 1.1 lakh crore in 2020-21 and 1.59 lakh crore in 2021-22 as back-to-back loans for States to pay part of the shortfalls due to shortfalls in compensation cess accruals to address the resource gap.
The Telangana government, on the other hand, is opposing the Centre’s assessment of the state’s debt. Somesh Kumar, the Chief Secretary, stated, “There is something wrong with GOI computations.” The finer points are being ironed out.” He was responding to a question about how much money the state was entitled to receive from the federal government for GST.
Mr. Kumar noted that Telangana, which has received 296 crores, has chosen to write to the Centre.