Government sources said some states want the Centre to fund the deficit through the Consolidated Fund of India, but that would hamper the government’s own committed expenditures.
The government on Thursday said it released GST compensation of Rs 36,400 crore to the states for the period of December 2019-February 2020. The government data suggest that disbursement of compensation is at least Rs 15,000 crore more than the collection so far, but the source of the money is not immediately clear.
The government said the compensation of Rs 1.15 lakh crore had already been released for the April-November 2019 period. “Taking stock of the current situation due to COVID-19 where state governments need to undertake expenditure while their resources are adversely hit, the central government has released Rs 36,400 crore to the states/UTs with legislature for the period from December, 2019 to February, 2020 on June 4,” it said.
As FE had reported earlier, the Centre was in favour of proposing to the GST Council to allow it to borrow from the market to fund the shortfall to ensure that states’ guaranteed revenue growth of 14% year-on-year is protected. This could be repaid by collection of cess in the sixth year or subsequent years, according to one of the options being discussed.
Other options under discussion include raising tax rates by moving slabs to the higher bracket to augment revenue, or for the states to surrender the guaranteed revenue growth while agreeing to share the available funds in the compensation cess kitty, government sources said. The finance ministry is staring at a Rs 48,000-crore deficit between compensation cess fund collection and states’ requirement.
Government sources said some states want the Centre to fund the deficit through the Consolidated Fund of India, but that would hamper the government’s own committed expenditures. Also, the GST law is clear that in the event of compensation cess fund shortfall, the GST Council would take remedial measures.
The GST Council in December last year had discussed several measures to boost tax collection, including just having two slabs of 10% and 20%, or moving items from 5%/12% slabs to higher brackets, withdrawing exemptions on certain items, bringing high-end healthcare and education under GST ambit and reversing rate cut on certain items that were brought down to 18% from 28%.