Joining a growing chorus of state finance ministers for an extension of the GST compensation mechanism for 2-3 years, BJP-ruled state Uttarakhand’s finance minister Prem Chand Aggarwal on Wednesday said the Centre should either extend the mechanism or consider compensating his state as the five-year facility will end on Thursday. “Being a new state, we have limited sources of revenue. We will demand in the GST Council for an extension of the compensation scheme or in some other way compensate for the revenue loss. If not extended, we will have an annual loss of about Rs 5,000 crore,” Aggarwal said.
With several states including Tamil Nadu, Kerala, Chhattisgarh, Delhi and some BJP-ruled states such as Goa demanding extension of the GST compensation mechanism, the GST Council is discussing the matter today. “The consequences of inflation, the cracking down on states’ borrowing and spending by the union government, the thing to do with conscience is to extend compensation. Should the compensation not be extended, it would be so negative, so devastating in some cases that I don’t think that the Union government would want it on its conscience,” Tamil Nadu finance minister P Thiaga Rajan said.
The GST Compensation to States Act provides for the release of compensation against 14% year-on-year growth over revenues in 2015-16 from taxes subsumed in GST for the first five years of the tax, which will end on Thursday. “We are asking for an extension for the compensation mechanism for five years beyond June,” Kerala Finance Minister KN Balagopal said.
All India average revenue shortfall from protected level declined to about 27% in FY22 from about 38% in FY21, according to official sources. It may further decline in FY23. “If the protective revenue provision is not continued then the 50% formula for CGST & SGST should be changed to SGST 80 – 70% & CGST 20-30 %,” Chattisgarh minister TS Singhdeo wrote to union finance minister Nirmala Sitharaman.
In the first place, the guaranteed revenue offered to the states far exceeded historical trend. GST receipts grew at average annual rate of 9.2% in F19-FY22. As compared to this, states’ VAT receipts, excluding fuel taxes, had grown at just 0.7% in FY14-FY17. A total sum of Rs 61.87 trillion was collected as GST receipts (including compensation cess) in the last five years, but states were still given Rs 8.2 trillion as compensation, including the transfers of Rs 2.7 trillion raised by the Centre as loan.