Centre releases 6th installment of Rs 6,000 crore to states to meet GST compensation shortfall

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December 9, 2020 8:53 PM

So far, permission for borrowing an additional amount of Rs 1,06,830 crore has been granted to 28 states under this provision.

The remaining five states, Arunachal Pradesh, Manipur, Mizoram, Nagaland and Sikkim, do not have a gap in revenue on account of GST implementation.

The Centre on Wednesday said it has released the sixth installment of Rs 6,000 crore to the states to meet the GST compensation shortfall. With this installment, a total amount of Rs 36,000 crore has been released so far.

Out of Rs 6,000 crore released this week, an amount of Rs 5,516.60 crore has been given to 23 states and Rs 483.40 crore has been released to the 3 Union Territories (UTs) with Legislative Assembly (Delhi, Jammu & Kashmir and Puducherry) which are members of the GST Council, the Finance Ministry said in a statement.

“The amount has been borrowed this week at an interest rate of 4.2089 per cent. So far, an amount of Rs 36,000 crore has been borrowed by the central government through the special borrowing window at an average interest rate of 4.7106 per cent,” it said.

The remaining five states, Arunachal Pradesh, Manipur, Mizoram, Nagaland and Sikkim, do not have a gap in revenue on account of GST implementation.

The Government of India is borrowing this amount on behalf of the states and UTs through a special borrowing window to meet the estimated shortfall of Rs 1.10 lakh crore in revenue arising on account of GST implementation, it said.

In addition to providing funds through the special borrowing window to meet the shortfall in revenue on account of GST implementation, it said, the Government of India has also granted additional borrowing permission equivalent to 0.5 per cent of states’ GSDP to the states choosing option-1 to meet GST compensation shortfall to help them in mobilising additional financial resources.

So far, permission for borrowing an additional amount of Rs 1,06,830 crore has been granted to 28 states under this provision.

Interest on the borrowed amount would be the first charge on the cess, which gets collected beyond the five years. The next charge would be 50 per cent towards the principal amount which gets borrowed, that is Rs 1.10 lakh crore and then the remaining 50 per cent would be towards COVID-19 affected compensation.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

The payment of GST compensation to states became an issue after revenues from the imposition of cess started dwindling since August 2019. The Centre had to dip into the excess cess amount collected during 2017-18 and 2018-19.

The Centre had released over Rs 1.65 lakh crore in 2019-20 as GST compensation. However, the amount of cess collected during the 2019-20 stood at Rs 95,444 crore. The compensation payout amount was Rs 69,275 crore in 2018-19 and Rs 41,146 crore in 2017-18.

During April-July of the current fiscal, the total compensation due to states stands at over Rs 1.51 lakh crore.

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