Centre clears entire GST compensation payable to states till date

Centre taps own resources to clear entire pending GST compensation to states as of May 31, 2022

The Centre has cleared the entire GST compensation payable till date by releasing Rs 86,912 crore to states, the finance ministry said on Tuesday.

Of this, Rs 25,000 crore is released from the GST compensation fund and the balance Rs 61,912 crore is being released by the Centre from its own resources pending collection of cess.

Of the total compensation released, Rs 17,973 crore is towards April and May dues, Rs 21,322 crore towards February-March dues and Rs 47,617 crore is the balance of compensation payable up to January 2022.

"The government of India has released the entire amount of GST compensation payable to states up to May 31, 2022 by releasing an amount of Rs 86,912 crore. This decision was taken to assist the states in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year," the ministry said in a statement.

Goods and Services Tax (GST) was introduced in the country with effect from July 1, 2017 and states were assured of compensation for the loss of any revenue arising on account of implementation of GST for a period of five years.

For providing compensation to states, cess is being levied on certain goods and the amount of cess collected is credited to compensation fund.

Bi-monthly GST compensation to states for the period 2017-18, 2018-19 was released on time out of the compensation fund.

As the states' protected revenue has been growing at 14 per cent compounded growth whereas the cess collection did not increase in the same proportion, COVID-19 further increased the gap between protected revenue and the actual revenue receipt including reduction in cess collection.

In order to meet the resource gap of the states due to short release of compensation, Centre has borrowed and released Rs 1.1 lakh crore in 2020-21 and Rs 1.59 lakh crore in 2021-22 as back-to-back loan to meet a part of the shortfall in cess collection.

In addition, Centre has also been releasing regular GST compensation from the fund to meet the shortfall.