Under fire, Centre releases Rs 35,298 crore GST compensation to states

The GST Council, the highest decision making body of the indirect tax regime, is slated to hold its meeting on December 18

Facing heat over delay in payment of GST compensation, the central government on Monday released Rs 35,298 crore to states to make up for the loss of revenue due to rollout of the Goods and Services Tax (GST).

When GST was rolled out on July 1, 2017, states were through legislation promised to be compensated for the loss of revenue as not just their taxes such as VAT were being subsumed in the new levy but also their right to levy taxes was being snatched.

The compensation amount was fixed at 14 per cent on top of revenue in the base year of 2016-17. The corpus for paying compensation was collected by levying a cess on top of GST rates on tobacco products, cigarettes, aerated water, automobiles, and coal.

This compensation was to be released after every two months but the same was pending since August, drawing protests from states, particularly non-BJP ruled ones.

"The central government has released GST compensation of Rs 35,298 crore to States and Union Territories today," the Central Board of Indirect Taxes and Customs (CBIC) said in a Twitter post.

This comes just days before the 38th meeting of the GST Council - the highest decision-making body of the new indirect tax regime - on December 18, where the opposition-ruled states had planned to again raise the issue of delayed payments.

Opposition-ruled states such as Punjab, West Bengal and Kerala have since last month upped the ante for the immediate release of GST Compensation Fund. Their finance ministers had also met Union Finance Minister Nirmala Sitharaman and the issue came up during the just-concluded Winter Session of Parliament.

Sitharaman had in press conferences and industry events acknowledged the dues but never mentioned timelines for making the payment.

She had in the Rajya Sabha on December 12 stated that in 2017-18, the total cess collected was Rs 62,596 crore, of which Rs 41,146 crore was released to states. The remaining Rs 15,000 crore was accumulated in the Cess Fund. In the next year, Rs 95,081 crore was collected and Rs 69,275 crore released to states but "cess accumulated in the Fund was zero," she had said, according to a verbatim transcript of her speech available on the Rajya Sabha website.

It wasn't clear how no money was accumulated in the Cess Fund in 2018-19 when, according to her, only Rs 69,275 crore out of Rs 95,081 crore was paid.

She also hadn't said what happens to the surplus that accumulates in the Fund.

According to Sitharaman, during the current fiscal year that began in April 2019, cess collections till October 31 were Rs 55,467 crore but compensation released to the states was Rs 65,250 crore. "The Government of India has released Rs 9,783 crore more than the amount raised through cess collections (this fiscal)," she had said in the Rajya Sabha.

On Monday, Sitharaman, speaking at a conference, assured states that the Centre will not "renege" on the promise of GST compensations.

The delays to pass on the money are due to slippage in collections and the states have nothing to be embarrassed about, she said. "It is certainly their right, I am not denying. At the same time, I am also making it clear to say that I am not reneging on that. States will be given. We are certainly not reneging on it. I admit that the payments which had to go the compensation head have not been given for two months slot." "I do not want them (states) to feel embarrassed because it's not their fault nor is it personally my fault," she said, admitting that GST collections have been much lower than expectations.

She attributed the dip in collections to a slip in GST filing due to natural calamities and also due to a slowdown in consumption that has a direct impact on the collections.